Tristel (LON:TSTL) cover image
226 Reads (2 mins read)

Here's why Tristel (LON:TSTL) could be a good long-term stock pick

2nd Apr '19 by Ben Hobson

When it comes to investing, I'm convinced it pays to buy and hold the best quality companies possible. These companies can compound investment returns at consistently above-average rates over the long term.

These stocks are different because they've got what billionaire investor Warren Buffett, calls economic moats.

In this article, I'm going to tell you what makes these stocks so special by using Tristel (LON:TSTL) as an example. Tristel is a speculative, small cap in the Environmental Services & Equipment industry.

GET MORE DATA-DRIVEN INSIGHTS INTO LON:TSTL »

Has Tristel (LON:TSTL) got a moat?

When it comes to searching for companies with moats, some of the biggest clues actually lie in their financial statements. By looking at a small number of important ratios you can get an idea about the competitive strength and profit power in a business.

Here's what they are and why they are important - and how Tristel stacks up against them:

  1. High rates of Free Cash Flow - the measure of a thriving company.
    - A high ratio of free cash flow to sales can be a very positive sign. For Tristel, the figure is an impressive 17.8%.
  2. High Return on Capital Employed - the measure of a company growing efficiently and profitably.
    - A 5-year average ROCE of more than 12 percent is a pointer to strong efficiency. For Tristel, the figure is an eye-catching 19.0%.
  3. High Return on Equity (compared to peers) - the measure of a company making good profits from its assets.
    - Tristel has a 5-year average ROE of 16.7%.
  4. High Operating Margins (compared to peers) - the measure of a company with pricing power
    - Tristel has a 5-year average operating margin of 16.4%.

So it does seem as though Tristel might have some kind of economic moat. A quick look at Tristel's (LON:TSTL) StockReport page shows that the company has a Quality Rank of 94.

What does this mean for potential investors?

Some of the best quality stocks in the market have defensible models that can deliver high levels of shareholder returns over the long term. But there are no guarantees and it's important to do your own research. Indeed, we've identified some areas of concern with Tristel that you can find out about here.

Alternatively, if you'd like to find more shares that have some of the characteristics of promising economic moats, you should take a look at this Economic Moats screen.

Share this article
As per our Terms of Use, Stockopedia is a financial news & data site, discussion forum and content aggregator. Our site should be used for educational & informational purposes only. We do not provide investment advice, recommendations or views as to whether an investment or strategy is suited to the investment needs of a specific individual. You should make your own decisions and seek independent professional advice before doing so. Remember: Shares can go down as well as up. Past performance is not a guide to future performance & investors may not get back the amount invested.
Share Price
637p
Change Today
2.08%
Tristel ( )

Stockopedia is here to help individual investors beat the markets by being the very best in stock analysis, research & community. Take a 30 day free trial of our extensive multi-award winning service and find out why more than ten thousand global investors can't live without it.

© Stockopedia 2021, Refinitiv, Share Data Services.
This site cannot substitute for professional investment advice or independent factual verification. To use it, you must accept our Terms of Use, Privacy and Disclaimer policies.