- A vital relationship with Nike
- Long-term chief executive retiring
Our quality screen picks out companies which are using their capital structure in an efficient way to drive returns. The key metric is return on invested capital (ROIC), which needs to be above the median level for the last two financial years and be higher than two years ago for a company to appear on the screen.
Foam manufacturer Zotefoams (ZTF) appeared near the top of the small-cap section of our latest quality screen, with a ROIC of just over 8 per cent for the last 12 months. When we last ran the quality screen in January, the company failed our forecast earnings per share (EPS) growth and price to earnings (PEG) valuation tests. This time around it enjoyed a clean sweep apart from coming up short against the requirement to have a cash conversion ratio of over 95 per cent (its rate is 86 per cent). The growth trajectory looks attractive, given that analysts forecast the EPS growth rate will accelerate from 21 per cent to 31 per cent over the next two financial years.
