Quality investing is not about chasing the cheapest stock or the hottest story. It is about finding durable businesses that can compound value over long periods, often years or decades. The Caviar Cruise screen was designed specifically to surface these kinds of companies. Inspired by the “quality investing” methodology and the work of Belgian author Luc Kroeze, the screen filters for consistent growth, strong returns on capital, healthy debt levels, and solid cash conversion. The idea is simple: if a company can grow its revenue and profits year after year while using its capital efficiently and keeping its balance sheet clean, it is worth a closer look.
Merit Medical Systems Inc. (NASDAQ:MMSI) turns up as a strong candidate in this screen. The company manufactures disposable medical devices used in cardiovascular and endoscopy procedures, a sector that benefits from recurring demand. Let’s break down why MMSI fits the Caviar Cruise criteria and why that matters for a quality-focused portfolio.
Recent Performance
The Caviar Cruise screen requires a company to show at least 5% annual revenue growth over the past five years, and Merit Medical delivers on that front. The company’s revenue CAGR over the last five years stands at 6.4%, comfortably above the threshold. More importantly, the screen looks for EBIT growth that outpaces revenue growth—a sign that the business is becoming more profitable as it scales. MMSI’s EBIT growth over the same period is a whopping 29.2% per year, far exceeding its revenue growth. This suggests the company is benefiting from economies of scale and pricing power, which are hallmarks of a quality business.
Beyond top-line and profit expansion, the screen also checks that profitability is improving over time. The operating margin and profit margin have both increased in recent years, and the return on invested capital (ROIC) is also trending upward. The current ROIC (excluding cash, goodwill, and intangibles) sits at 15.5%, right at the Caviar Cruise threshold of 15%. That figure is also higher than the three-year average ROIC of 5.6%, confirming that returns are accelerating rather than eroding.
Valuation Metrics
Quality investors are willing to pay a fair price for a great business, but they do not ignore valuation entirely. Merit Medical currently trades at a price-to-earnings ratio of 17.9, which is below the S&P 500 average of 27.4 and cheaper than over 80% of its industry peers. The forward P/E of 16.6 suggests the market expects continued earnings growth, yet the stock is not priced at a premium relative to the broader market.
On an EV/EBITDA basis, MMSI is also cheaper than more than 80% of companies in the Health Care Equipment & Supplies sector. The price-to-free-cash-flow ratio is even more notable, with over 90% of industry peers trading at a higher multiple. This does not mean MMSI is a deep value stock, but it does indicate that the market is not demanding an unreasonable premium for the quality on offer.
One caution: the PEG ratio is slightly elevated, meaning the current earnings multiple is not fully justified by near-term growth expectations. Analysts forecast EPS growth of about 6.85% per year over the next few years, which is modest. For a quality investor, the trade-off might be acceptable because the business’s stability and recurring revenue profile reduce risk.
Analyst Views
The fundamental health of MMSI earns it a rating of 6 out of 10 from the Chartmill FA report, with the strongest scores coming from profitability and financial health. Profitability clocks in at 8/10, supported by consistent positive earnings and operating cash flow over the past five years. The profit margin of 8.5% and operating margin of 12.6% are both well above industry averages, and both have been trending higher.
On the health side, MMSI scores 7/10. Its debt-to-free-cash-flow ratio is 3.5, meaning it would take about 3.5 years of free cash flow to pay off all debt—well within the Caviar Cruise screen’s requirement of under 5 years. The Altman-Z score of 3.82 indicates a very low risk of bankruptcy, and the current ratio of 4.3 shows the company has ample liquidity.
The profit quality metric, which measures how much net income is converted into free cash flow, comes in at an impressive 153% over the last five years. That is well above the screen’s 75% threshold and indicates that MMSI is converting more than 100% of its accounting profits into actual cash—a sign of high earnings quality. The only notable weakness is that MMSI does not pay a dividend, which is common for growth-focused companies in this space.
For a deeper look at the full fundamental breakdown, you can view the complete Fundamental Analysis Report for MMSI.
Quality Scorecard
- Revenue Growth (5Y CAGR): 6.4% (above 5% threshold)
- EBIT Growth (5Y CAGR): 29.2% (above 5% threshold and exceeds revenue growth)
- ROIC (Ex Cash, Goodwill, Intangibles): 15.5% (above 15% threshold)
- Debt / Free Cash Flow: 3.5 (below 5 threshold)
- Profit Quality (5Y average): 153% (above 75% threshold)
- Operating Margin & Profit Margin: Both improving over five years
- Future Revenue Growth (3Y estimate): 6.4% (above 5% threshold in advanced screen)
Merit Medical checks nearly every box in the Caviar Cruise screen, from consistent top-line expansion to strong cash conversion and a healthy balance sheet. The improving margins and accelerating ROIC are particularly encouraging signs that the company is not just growing, but growing more efficiently. While the near-term growth rate is moderate, the underlying stability of the medical device industry and the company’s solid financial footing make it a candidate worth investigating further for a quality-oriented portfolio.
Want to explore other stocks that meet the same strict quality criteria? You can run the full Caviar Cruise stock screener for yourself and see the latest results here.
Disclaimer: This article is for informational purposes only and does not constitute investment advice. Always conduct your own research or consult a financial advisor before making any investment decisions.