UFP INDUSTRIES INC (NASDAQ:UFPI) Stands Out as a Quality Investment with Strong EBIT Growth and High ROIC

The Caviar Cruise stock screening strategy is based on quality investing, a method that looks for companies with lasting competitive edges, solid financial health, and steady growth. Inspired by Belgian author Luc Kroeze’s The Caviar Formula, this strategy prioritizes holding high-quality businesses for the long term. The screen checks for revenue and EBIT growth, high return on invested capital (ROIC), reasonable debt levels, and strong profit quality, metrics that together point to operational efficiency, financial strength, and value for shareholders.

UFP Industries Inc (NASDAQ:UFPI) stands out as a candidate from this screen, showing multiple traits that fit quality investing principles.

Key Criteria and How UFPI Performs

1. Strong EBIT Growth (5Y CAGR > 5%)
   UFPI’s EBIT has grown at a 15.1% annual rate over the past five years, far above the 5% target. This shows the company’s ability to increase profits faster than sales, a sign of pricing strength or operational efficiency. For quality investors, consistent EBIT growth signals a business that can grow effectively without relying only on revenue increases.

2. High Return on Invested Capital (ROICexgc > 15%)
   With an ROIC of 20.5% (excluding cash, goodwill, and intangibles), UFPI easily surpasses the 15% mark. This measure is key for quality investing, as it reveals how well a company turns capital investments into profits. A high ROIC suggests UFPI has a competitive edge, whether through brand power, cost benefits, or operational skill.

3. Low Debt Relative to Free Cash Flow (Debt/FCF < 5)
   UFPI’s debt-to-FCF ratio of 0.78 is outstanding, meaning it could pay off all its debt in less than a year using current cash flows. This matches the Caviar Cruise screen’s focus on financial stability, companies with low debt are better equipped to handle economic challenges and fund growth.

4. Profit Quality (5Y Average > 75%)
   UFPI’s five-year average profit quality of 106.8% shows it turns net income into free cash flow at a high rate. Strong profit quality gives investors confidence that earnings are backed by real cash flow, lowering the risk of financial tricks or unsustainable practices.

Fundamental Strengths and Weaknesses

According to ChartMill’s fundamental analysis, UFPI scores a 6 out of 10, with clear strengths in financial health (score: 8) and a mixed profitability profile (score: 6). Key points include:

• Solvency: A debt-to-equity ratio of 0.07 and strong liquidity metrics (current ratio: 4.96) highlight a cautious balance sheet.
• Valuation: Trading at a P/E of 17.76, UFPI is priced a bit below industry peers but carries a higher multiple compared to its short-term earnings growth outlook.
• Growth Concerns: Recent drops in EPS (-25.5% YoY) and revenue (-7.8% YoY) dampen excitement, though long-term trends stay positive (8.5% annual revenue growth over five years).

Why Quality Investors Might Look at UFPI

UFPI works in the building products sector, providing wood and composite materials for retail, packaging, and construction markets. Its varied segments, Retail Solutions, Packaging, and Construction, help it withstand downturns in any single area. The company’s ability to keep high ROIC and profit quality despite economic challenges points to smart capital use and pricing strength.

While valuation is not a main filter in the Caviar Cruise screen, UFPI’s fair P/E and strong cash flow generation offer a sensible entry point for investors who value quality over deep discounts.

Find More Quality Candidates

For investors looking for other companies that meet the Caviar Cruise criteria, the full screen results are available here.

Disclaimer: This article is not investment advice. Investors should do their own research or consult a financial advisor before making decisions.