Published: 06th Nov 2024
By: Value Research
An economic moat allows a company to maintain competitive advantages over its rivals, ensuring long-term sustainability and profitability. Think proprietary tech, patents, brand loyalty, and more.
Investors naturally seek companies with strong moats because they have a leg up on the competition. But how to find these companies? Pat Dorsey, Director of Stock Analysis at Morningstar has answered in his book 'The Five Rules For Successful Stock Investing'.
As per Dorsey, a moat can often be detected in a company's long-term financials. His criteria is—Market cap > Rs 1,000 crore, free cash flows by sales > 5%, PAT margin > 15%, ROE > 15% and ROA > 6%
Qualitative factors are equally important. As per Dorsey, these include: Real product differentiation (related to superior technology or featured products), perceived product differentiation (brand loyalty), lower cost offerings, high switching costs and high barriers to entry.
Our story lists Indian stocks that have met Dorsey’s quantitative criteria of a strong moat for 10 years (FY14-23). Check the list from the link below.
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