We ran a screen inspired by the Caviar Cruise quality investing methodology, a strategy focused on buying and holding companies with durable competitive advantages, improving profitability, and strong financial discipline. This screen prioritizes consistent revenue and EBIT growth, high returns on invested capital, manageable debt levels, and high-quality earnings—characteristics that quality investors seek before committing capital for the long term. Below, we break down how CARS.COM INC ( NYSE:CARS ) aligns with these criteria.
Screening Criteria Performance
The Caviar Cruise screen demands a 5-year revenue CAGR of at least 5% and a 5-year EBIT CAGR above 5%, with EBIT growth outpacing revenue growth. CARS posts a revenue CAGR of just 1.45% over the past five years, which falls short of the 5% threshold. However, its EBIT CAGR of 15.27% significantly exceeds revenue growth, meeting the requirement that profitability expands faster than top-line sales. This dynamic suggests improving operating efficiency and potential economies of scale—exactly what the screen seeks to identify for quality investors.
The screen also requires a Return on Invested Capital (excluding cash, goodwill, and intangibles) above 15%. CARS achieves a ROICexgc of 25.33%, comfortably above that bar. This metric is central to quality investing because it indicates how effectively the company deploys capital to generate profits. A high and growing ROIC often signals a durable competitive advantage.
On the debt side, the screen caps the Debt-to-Free Cash Flow ratio at under 5. CARS’s ratio stands at 2.86, meaning it could theoretically repay all debt with less than three years of free cash flow. This low leverage aligns with the quality investor preference for financial resilience.
Profit Quality—defined as the 5-year average of free cash flow divided by net income—must be at least 75%. CARS posts a profit quality of 578.4%, meaning its free cash flow far exceeds reported net income over that period. While an extreme figure, it indicates strong cash generation relative to accounting profits, a hallmark of high-quality earnings the screen aims to capture.
Valuation Metrics
Despite the screen not including valuation filters, the forward-looking numbers for CARS are noteworthy. Its Price/Forward Earnings ratio sits at 7.10, making it cheaper than nearly 87% of its industry peers. The Price/Free Cash Flow ratio is also deeply discounted relative to the sector. While the trailing Price/Earnings ratio of 25.44 is in line with the industry average, the forward P/E suggests the market is pricing in significant earnings growth—analysts expect earnings per share to grow an average of 77.18% annually over the next several years. The low PEG ratio further indicates that growth is not fully priced in, offering potential compensation for patient quality investors.
Fundamental Report Summary
According to the CARS fundamental analysis report, the company earns an overall score of 5 out of 10. Profitability stands out, with returns on assets, equity, and invested capital all outperforming the majority of peers. Margins are solid and improving. The primary concern is financial health: an Altman-Z score of 0.40 signals some distress risk, though the debt-to-free-cash-flow ratio is low. Growth has been mixed—past EPS declined sharply, but future projections are strongly positive. Valuation is relatively attractive on forward metrics, especially compared to the industry and the broader S&P 500.
A Tool for Quality Investors
For those interested in applying the Caviar Cruise screen to find other candidates, more results can be found via this link. The screen is designed to surface companies with the financial traits that support long-term compounding.
Disclaimer: This article is for informational purposes only and does not constitute investment advice. Past performance is not indicative of future results. Always conduct your own research before making investment decisions.
Read full article here »
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CARS.COM INC (NYSE:CARS) Passes Quality Screen with Strong Profitability and Deep Value Metrics
We ran a screen inspired by the Caviar Cruise quality investing methodology, a strategy focused on buying and holding companies with durable competitive advantages, improving profitability, and strong financial discipline. This screen prioritizes consistent revenue and EBIT growth, high returns on invested capital, manageable debt levels, and high-quality earnings—characteristics that quality investors seek before committing capital for the long term. Below, we break down how CARS.COM INC ( NYSE:CARS ) aligns with these criteria.
Screening Criteria Performance
The Caviar Cruise screen demands a 5-year revenue CAGR of at least 5% and a 5-year EBIT CAGR above 5%, with EBIT growth outpacing revenue growth. CARS posts a revenue CAGR of just 1.45% over the past five years, which falls short of the 5% threshold. However, its EBIT CAGR of 15.27% significantly exceeds revenue growth, meeting the requirement that profitability expands faster than top-line sales. This dynamic suggests improving operating efficiency and potential economies of scale—exactly what the screen seeks to identify for quality investors.
The screen also requires a Return on Invested Capital (excluding cash, goodwill, and intangibles) above 15%. CARS achieves a ROICexgc of 25.33%, comfortably above that bar. This metric is central to quality investing because it indicates how effectively the company deploys capital to generate profits. A high and growing ROIC often signals a durable competitive advantage.
On the debt side, the screen caps the Debt-to-Free Cash Flow ratio at under 5. CARS’s ratio stands at 2.86, meaning it could theoretically repay all debt with less than three years of free cash flow. This low leverage aligns with the quality investor preference for financial resilience.
Profit Quality—defined as the 5-year average of free cash flow divided by net income—must be at least 75%. CARS posts a profit quality of 578.4%, meaning its free cash flow far exceeds reported net income over that period. While an extreme figure, it indicates strong cash generation relative to accounting profits, a hallmark of high-quality earnings the screen aims to capture.
Valuation Metrics
Despite the screen not including valuation filters, the forward-looking numbers for CARS are noteworthy. Its Price/Forward Earnings ratio sits at 7.10, making it cheaper than nearly 87% of its industry peers. The Price/Free Cash Flow ratio is also deeply discounted relative to the sector. While the trailing Price/Earnings ratio of 25.44 is in line with the industry average, the forward P/E suggests the market is pricing in significant earnings growth—analysts expect earnings per share to grow an average of 77.18% annually over the next several years. The low PEG ratio further indicates that growth is not fully priced in, offering potential compensation for patient quality investors.
Fundamental Report Summary
According to the CARS fundamental analysis report, the company earns an overall score of 5 out of 10. Profitability stands out, with returns on assets, equity, and invested capital all outperforming the majority of peers. Margins are solid and improving. The primary concern is financial health: an Altman-Z score of 0.40 signals some distress risk, though the debt-to-free-cash-flow ratio is low. Growth has been mixed—past EPS declined sharply, but future projections are strongly positive. Valuation is relatively attractive on forward metrics, especially compared to the industry and the broader S&P 500.
A Tool for Quality Investors
For those interested in applying the Caviar Cruise screen to find other candidates, more results can be found via this link. The screen is designed to surface companies with the financial traits that support long-term compounding.
Disclaimer: This article is for informational purposes only and does not constitute investment advice. Past performance is not indicative of future results. Always conduct your own research before making investment decisions.
Read full article here »