Is Qlik a Buffett Stock?

As the world's third-richest person and most celebrated investor, Warren Buffett attracts a lot of attention. Thousands try to glean what they can from his thinking processes and track his investments.

We can't know for sure whether Buffett is about to buy Qlik (Nasdaq: QLIK  ) -- he hasn't specifically mentioned anything about it to me -- but we can discover whether it's the sort of stock that might interest him. Answering that question could also reveal whether it's a stock that should interest us.

In his most recent 10-K, Buffett lays out the qualities he looks for in an investment. In addition to adequate size, proven management, and a reasonable valuation, he demands:

  1. Consistent earnings power.
  2. Good returns on equity with limited or no debt.
  3. Management in place.
  4. Simple, non-techno-mumbo-jumbo businesses.

Does Qlick meet Buffett's standards?

1. Earnings power
Buffett is famous for betting on a sure thing. For that reason, he likes to see companies with demonstrated earnings stability.

Let's examine Qlick's earnings and free cash flow history.

Source: Capital IQ, a division of Standard & Poor's. Free cash flow is adjusted based on author's calculations.

Over the past four years, Qlick has grown earnings considerably.

2. Return on equity and debt
Return on equity is a great metric for measuring both management's effectiveness and the strength of a company's competitive advantage or disadvantage -- a classic Buffett consideration. When considering return on equity, it's important to make sure a company doesn't have an enormous debt burden, because that will skew your calculations and make the company look much more efficient than it actually is.

Since competitive strength is a comparison between peers, and various industries have different levels of profitability and require different levels of debt, it helps to use an industry context.

Company

Debt-to-Equity

Return on Equity (LTM)

Return on Equity (5-Year Average)

Qlik Technologies

0%

10%

16%

MicroStrategy (Nasdaq: MSTR  )

0%

21%

38%

salesforce.com (NYSE: CRM  )

42%

4%

6%

Ultimate Software (Nasdaq: ULTI  )

6%

4%

17%

Source: Capital IQ, a division of Standard & Poor's.

Qlik generates moderate returns on equity. It doesn't have any debt.

3. Management
CEO Lars Bjork has been at the job since 2007.

4. Business
Business-intelligence software is fairly susceptible to disruption.

The Foolish conclusion
Whether or not Buffett would ever buy Qlik, we've learned that although it operates in a tech-centric industry, it exhibits some of the other characteristics of a quintessential Buffett investment: consistent or growing earnings, high returns on equity with limited debt, and long-tenured management.

If you'd like to stay up-to-speed on the top news and analysis on Qlik or any other stock, simply add it to your stock watchlist. If you don't have one yet, you can create a watchlist of your favorite stocks.

Ilan Moscovitz doesn't own shares of any companies mentioned. The Motley Fool owns shares of Qlik Technologies. Motley Fool newsletter services have recommended buying shares of salesforce.com and Qlik Technologies and shorting salesforce.com. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (3) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 15, 2011, at 6:41 PM, skypilot2005 wrote:

    Ilan,

    Are you done answering questions on this article?:

    http://www.fool.com/investing/general/2011/06/10/from-the-wh...

    Sky Pilot

  • Report this Comment On June 17, 2011, at 5:41 PM, rrabideau wrote:

    Misses one criteria, its Technology. Buffet doesnt do technology.

  • Report this Comment On June 17, 2011, at 11:26 PM, skypilot2005 wrote:

    Ilan Moscovitz wrote:

    "We can't know for sure whether Buffett is about to buy Qlik but we can discover whether it's the sort of stock that might interest him."

    On June 17, 2011, at 5:41 PM, rrabideau wrote:

    "Buffet doesnt do technology."

    **

    I wonder why Ilan refers to Mr. Buffet in this article?

    There appears to be a MAJOR disconnect.

    Ilan should become familiar with Mr. Buffet's Berkshire Hathaway portfolio and stated position on investing in technology companies.

    http://www.berkshirehathaway.com/subs/sublinks.html

    Maybe, Ilan's time would have been better spent becoming familiar with that than hanging out with Elizabeth Warren and President Obama at the White House recently.

    Fool On,

    Sky Pilot

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