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 Navios Maritime
- Consistent earnings power.
- Good returns on equity with limited or no debt.
- Management in place.
- Simple, non-techno-mumbo-jumbo businesses.
Does Navios Maritime 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 Navios Maritime'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.
Despite the economic downturn, Navios Maritime has managed to produce growing earnings over the past five years. The free cash flow variability was largely due to capital investments.
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.
Return on Equity (LTM)
Return on Equity (5-Year Average)
|Navios Maritime Partners||65%||17%||27%|
Source: Capital IQ, a division of Standard & Poor's.
Navios Maritime has produced high returns on equity while employing moderate debt.
CEO Angeliki Frangou has been at the job since 2005. Before that, she worked for other shipping companies for a couple of decades.
Shipping isn't particularly susceptible to technological disruption, though it has high fixed costs and can be affected by changing economic conditions. Navios appears to have done a fairly decent job navigating through such changes over the past several years.
The Foolish conclusion
Whether or not Buffett would buy shares of Navios Maritime, we've learned that the company exhibits several of the other characteristics of a quintessential Buffett investment: consistent or growing earnings, high returns on equity with reasonable debt, tenured management, and a straightforward business.
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Ilan Moscovitz doesn't own shares of any companies mentioned. You can follow him on Twitter @TMFDada. 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.