When the goal is finding companies built for the long haul, quality investing is a strategy that’s stood the test of time. Instead of hunting for bargains or trying to time the market, quality investors look for durable businesses with strong fundamentals. One way to narrow down the list is to use a stock screener, and the Caviar Cruise screen is specifically designed for this task. Named after the “Caviar Formula” concept from quality investing circles, it filters for companies that demonstrate consistent growth, high profitability, strong cash flow, and balance sheet strength. Even in a broader market where the S&P 500 has a neutral long-term trend but a positive short-term direction, a quality-focused screen can help pinpoint candidates that are built to weather storms. One stock that appears on this screen is Telefonica Brasil-ADR ( NYSE:VIV ), a telecommunications provider based in Brazil.
How VIV Measures Up to the Core Quality Criteria
The Caviar Cruise screen uses several mandatory filters to separate potential quality investments from the rest. VIV clears these hurdles in a way that backs up the screen’s core logic.
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Revenue and Earnings Growth: The screen requires at least a 5% compound annual growth rate (CAGR) in both revenue and EBIT over the last five years. Growth in sales is a basic sign of a healthy, expanding business, but the real emphasis is on profit growth. Quality investors want to see the company isn’t just selling more—it’s making more profit on each sale. VIV posts a 5.55% revenue CAGR and a much higher 13.69% EBIT CAGR. This not only meets the minimums but also satisfies the next crucial filter.
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EBIT Outpacing Revenue: A key quality metric is that operating profit (EBIT) grows faster than revenue. This indicates improving efficiency, economies of scale, or pricing power—all signs of a strong competitive position. VIV’s numbers clearly support this, with EBIT growth more than doubling revenue growth.
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High Return on Invested Capital (ROIC): The screen demands a ROIC (excluding cash, goodwill, and intangibles) of at least 15%. This is arguably the most important metric in quality investing, as it measures how effectively a company uses its capital to generate profits. A high and stable ROIC is often a trademark of a company with a sustainable competitive advantage. VIV delivers an ROIC of 17.72%, placing it far above the 15% threshold and suggesting management is deploying capital efficiently.
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Low Debt Levels: A debt-to-free-cash-flow ratio under 5 is required. This ensures the company isn’t overleveraged and can service its debt comfortably from its own operations. A low ratio is a major safety buffer during tough economic times. VIV scores exceptionally well here, with a Debt/FCF ratio of just 1.73. This indicates a very strong balance sheet.
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Profit Quality: The screen also looks for an average profit quality (free cash flow as a percentage of net income) above 75% over five years. This is a check on accounting quality, ensuring that the profits on paper are being converted into actual cash. VIV’s profit quality stands at 186.65% , meaning the company is generating far more free cash flow than its reported net income. This is an exceptionally strong sign of a cash-generative business.
A High-Level Look at VIV’s Fundamental Health
Based on the fundamental analysis report, Telefonica Brasil scores an overall 6 out of 10, with a clear split between its strong points and some more neutral areas.
The report highlights that profitability is a clear strength, with strong returns on assets, equity, and invested capital. VIV’s margins are also above average compared to peers. Valuation looks attractive as well. While the current P/E might seem a bit high, the forward P/E is quite low (10.60), and the stock is cheap compared to many peers on metrics like EV/EBITDA. The growth outlook is also promising, with earnings per share expected to accelerate (16.68% projected growth) from its past pace (6.25%).
However, the report does flag some minor concerns. Financial health is good but not flawless. The company is not generating enough return on capital to cover its cost of capital (WACC), and its quick and current ratios are mediocre compared to the industry. Furthermore, recent dividend history shows a decreasing trend, which might be a watchpoint for income-focused investors.
Finding More Quality Candidates
VIV appears to be a solid fit for quality investors, meeting the strict criteria of high growth, strong profitability, excellent cash conversion, and a very low debt burden. The stock checks many boxes that are central to the buy-and-hold philosophy.
If you are interested in exploring more stocks that pass the Caviar Cruise screen and other quality-focused filters, you can check the full list of results here and start your own research.
Disclaimer: This article is for informational and educational purposes only. It does not constitute investment advice. You should consult with a qualified financial professional before making any investment decisions.
Read full article here »
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Telefonica Brasil-ADR (NYSE:VIV) Passes Quality Investing 'Caviar Cruise' Screen with Strong Fundamentals
When the goal is finding companies built for the long haul, quality investing is a strategy that’s stood the test of time. Instead of hunting for bargains or trying to time the market, quality investors look for durable businesses with strong fundamentals. One way to narrow down the list is to use a stock screener, and the Caviar Cruise screen is specifically designed for this task. Named after the “Caviar Formula” concept from quality investing circles, it filters for companies that demonstrate consistent growth, high profitability, strong cash flow, and balance sheet strength. Even in a broader market where the S&P 500 has a neutral long-term trend but a positive short-term direction, a quality-focused screen can help pinpoint candidates that are built to weather storms. One stock that appears on this screen is Telefonica Brasil-ADR ( NYSE:VIV ), a telecommunications provider based in Brazil.
How VIV Measures Up to the Core Quality Criteria
The Caviar Cruise screen uses several mandatory filters to separate potential quality investments from the rest. VIV clears these hurdles in a way that backs up the screen’s core logic.
Revenue and Earnings Growth: The screen requires at least a 5% compound annual growth rate (CAGR) in both revenue and EBIT over the last five years. Growth in sales is a basic sign of a healthy, expanding business, but the real emphasis is on profit growth. Quality investors want to see the company isn’t just selling more—it’s making more profit on each sale. VIV posts a 5.55% revenue CAGR and a much higher 13.69% EBIT CAGR. This not only meets the minimums but also satisfies the next crucial filter.
EBIT Outpacing Revenue: A key quality metric is that operating profit (EBIT) grows faster than revenue. This indicates improving efficiency, economies of scale, or pricing power—all signs of a strong competitive position. VIV’s numbers clearly support this, with EBIT growth more than doubling revenue growth.
High Return on Invested Capital (ROIC): The screen demands a ROIC (excluding cash, goodwill, and intangibles) of at least 15%. This is arguably the most important metric in quality investing, as it measures how effectively a company uses its capital to generate profits. A high and stable ROIC is often a trademark of a company with a sustainable competitive advantage. VIV delivers an ROIC of 17.72%, placing it far above the 15% threshold and suggesting management is deploying capital efficiently.
Low Debt Levels: A debt-to-free-cash-flow ratio under 5 is required. This ensures the company isn’t overleveraged and can service its debt comfortably from its own operations. A low ratio is a major safety buffer during tough economic times. VIV scores exceptionally well here, with a Debt/FCF ratio of just 1.73. This indicates a very strong balance sheet.
Profit Quality: The screen also looks for an average profit quality (free cash flow as a percentage of net income) above 75% over five years. This is a check on accounting quality, ensuring that the profits on paper are being converted into actual cash. VIV’s profit quality stands at 186.65% , meaning the company is generating far more free cash flow than its reported net income. This is an exceptionally strong sign of a cash-generative business.
A High-Level Look at VIV’s Fundamental Health
Based on the fundamental analysis report, Telefonica Brasil scores an overall 6 out of 10, with a clear split between its strong points and some more neutral areas.
The report highlights that profitability is a clear strength, with strong returns on assets, equity, and invested capital. VIV’s margins are also above average compared to peers. Valuation looks attractive as well. While the current P/E might seem a bit high, the forward P/E is quite low (10.60), and the stock is cheap compared to many peers on metrics like EV/EBITDA. The growth outlook is also promising, with earnings per share expected to accelerate (16.68% projected growth) from its past pace (6.25%).
However, the report does flag some minor concerns. Financial health is good but not flawless. The company is not generating enough return on capital to cover its cost of capital (WACC), and its quick and current ratios are mediocre compared to the industry. Furthermore, recent dividend history shows a decreasing trend, which might be a watchpoint for income-focused investors.
Finding More Quality Candidates
VIV appears to be a solid fit for quality investors, meeting the strict criteria of high growth, strong profitability, excellent cash conversion, and a very low debt burden. The stock checks many boxes that are central to the buy-and-hold philosophy.
If you are interested in exploring more stocks that pass the Caviar Cruise screen and other quality-focused filters, you can check the full list of results here and start your own research.
Disclaimer: This article is for informational and educational purposes only. It does not constitute investment advice. You should consult with a qualified financial professional before making any investment decisions.
Read full article here »