Our latest recommendation is an insurance firm that scores a top 100% rating based on the Small-Cap Growth model of Motley Fool, explains John Reese, editor of Validea.

Universal Insurance Holdings (UVE) is a vertically integrated insurance holding company.

This Motley Fool methodology seeks companies with a minimum trailing 12 month after tax profit margin of 7%. The companies that pass this criterion have strong positions within their respective industries and offer greater shareholder returns.

A true test of the quality of a company is that they can sustain this margin. Universal's profit margin of 20.50% passes this test.

The investor using this model must also look at the relative strength of the company in question.

Companies whose relative strength is 90 or above—that is, the company outperforms 90% or more of the market for the past year—are considered attractive.

Companies whose price has been rising much quicker than the market tend to keep rising. UVE, with a relative strength of 96, satisfies this test.

Companies must also demonstrate both revenue and net income growth of at least 25% as compared to the prior year.

These growth rates give you the dynamic companies that you are looking for. These rates for UVE (63.16% for EPS and 39.70% for Sales) are good enough to pass.

Universal’s insiders—according to the Motley Fool strategy—should own at least 10% of the company's outstanding shares, which is the minimum required.

A high percentage typically indicates that the insiders are confident that the company will do well. In this case, insiders own 10.94%, passing this test.

A positive cash flow is typically used for internal expansion, acquisitions, dividend payments, etc.

A company that generates rather than consumes cash is in much better shape to fund such activities on their own, rather than needing to borrow funds to do so. UVE's free cash flow of $2.70 per share passes this test.

Universal's profit margin has been consistent or even increasing over the past three years (current year: 19.77%, last year: 19.58%; two years ago: 11.23%), passing the requirement. It is a sign of good management and a healthy and competitive enterprise.

The firm's level of cash—$115.4 million—passes this model's criteria for cash and cash equivalents. If a company is a cash generator, like UVE, it has the ability to pay off debt (if it has any) or acquire other companies. Most importantly, good operations generate cash.

Finally, the Fool Ratio is an extremely important aspect of this analysis. If the company has attractive fundamentals and its Fool Ratio is 0.5 or less (UVE's is 0.31), the shares are looked upon favorably. These high quality companies can often wind up as the biggest winners. UVE passes this test.

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