Competitive advantages leave measurable traces: persistently high returns on capital and margins that hold up under pressure, screened automatically.
Save the strategy and StockScorer checks its rules for you every day. You'll get a heads-up whenever a stock crosses the upper or lower score threshold.
Once enough history is available, the backtest chart for this strategy will appear here.
Every stock runs through the same disclosed rules. The points add up to a score, traceable down to the individual rule.
Each rule checks a metric against a threshold, for example ROE above 15 %.
You decide how much each rule counts: from +1 to +3 or −1 to −3.
The sum is the score. Above the upper threshold: a high match with the profile.
These terms describe only the match with the criteria, not a recommendation to buy or sell.
A return on capital above 20% is the strongest measurable moat signal (+2).
Gross margins above 40% (defended against the prior year) show customers accept the price.
An FCF margin above 10% proves that book quality converts into real money.
ROE above 15% this year AND last year: one-off effects do not count.
For long-term quality investors who would rather hold an outstanding company at a fair price than a mediocre one at a bargain price. If you want valuation checked too, combine with Two-Factor Value + Quality.
An economic moat (network effects, switching costs, brands, economies of scale) cannot be measured directly, but its traces can: a company that sustains returns on capital far above its cost of capital and gross margins above 40% for years, without competitors eroding them, most likely has one. This strategy, inspired by the quality philosophy Warren Buffett made famous, looks for exactly those traces: high and persistent returns on capital and equity, defended margins, strong cash generation and balance-sheet discipline. What it deliberately does not check is the price: quality and valuation are separate questions here.
The core signal is the return on capital: an ROC above 20% earns +2 points, 12 to 20% still +1; below 8% or without a value the score is −2, because without above-average returns on capital no moat is in sight. On top come pricing power (gross margin above 40%, +1) and margin defence: a gross margin at least at the prior-year level (+1).
Three further checks round things off: FCF margin above 10% (+1), debt-to-equity below 0.5 (+1, a real moat needs no leverage doping) and durability: return on equity above 15% in the current AND the prior year (+1). The upper threshold is 5 points (small caps: 6) out of a maximum of 8.
Return on capital: ROC > 20% (+2), 12–20% (+1), < 8% or missing (−2).
Pricing power: gross margin > 40% (+1); gross margin ≥ prior year (+1).
Cash generation: FCF margin > 10% (+1).
Balance-sheet discipline: debt-to-equity < 0.5 (+1).
Durability: ROE > 15% this year and last (+1).
The strength: moat companies can raise prices without losing customers and reinvest at high returns: compounding works hardest there. The prior-year comparisons (margin, ROE) filter out one-off effects that a single point-in-time metric could fake.
Limits: the strategy ignores valuation entirely: outstanding quality bought too expensively can still be a poor investment. And it is backward-looking: a moat currently being breached (technology shift, regulation) shows up in the numbers only with delay. Capital-intensive industries with structurally low gross margins rarely meet the margin criteria; the strategy has a built-in sector tilt towards asset-light business models.
For patient investors with a long horizon who want to hold few, outstanding companies for a long time: the strategy deliberately produces little turnover.