A single number that tells you whether to buy a stock would be worth a great deal of money, and nobody has one. LensScore is not that. It is a report card: five grades that show where a company is strong and where it is weak compared with the companies it actually competes with, plus one number that ranks the whole card against every other company we cover.
Each company is graded A+ to F on five factors, and every grade is a percentile against its own sector, so a bank is compared with banks and a software company with software companies. The 0–10 LensScore ranks the weighted result across the whole universe. A 7.5 means the company's report card is better than about 75% of the companies we grade.
What to look at
- Value (20%): what you pay for each dollar of earnings, sales, cash flow and book value, compared with sector peers. Cheaper than peers grades higher.
- Growth (20%): how fast revenue and earnings per share have grown over recent years, using SEC-reported figures where we have them.
- Profitability (25%): margins and returns on equity and assets. This weighs most because durable profits are what compound over time.
- Financial health (15%): debt against equity, the ability to pay short-term bills, and interest coverage. Weak health is what turns a bad year into a crisis.
- Momentum (20%): price performance over 3, 6 and 12 months against peers. It tells you what the market is doing, not why.
- Caps: one failing grade (an F in value or profitability, D- or lower in health, D or lower in growth or momentum) holds the score at 6.8 or below, and two hold it at 5.0, so a cheap price cannot hide a broken balance sheet.
The shape of it
LensScore = rank of (25% Profitability + 20% Value + 20% Growth + 20% Momentum + 15% Health) across all graded companies, held down by caps when a grade is failing
An example
A company graded A in Profitability and Growth but D in Value is a great business priced like one. The score may be middling while the grades tell you exactly why: you are waiting for a better price, not a better business.
Where people go wrong
Grades compare a company with today's peers. They are not a forecast, and a top grade in momentum can disappear quickly. Read the five grades first, then the number.
The habit worth building: before you look at the score, say in one sentence which grade is carrying the company and which one worries you. If you can do that, the number becomes a quick check. If you cannot, the number is just a color.