What Is a Composite Stock Score?

No single metric captures the full picture of a stock. A company with excellent profitability can still be overpriced. A deeply discounted stock might be cheap for good reason. And a stock with strong momentum could be riding a bubble with no fundamental support.

The composite score solves this by requiring a stock to perform well across multipledimensions simultaneously. It is the intersection of quality, value, and momentum that produces the strongest long-term returns — not any single factor in isolation.

Question: Is this a fundamentally strong, durable business?

The Quality axis combines two complementary models. The Piotroski F-Score (35% of Quality) evaluates nine binary signals covering profitability, leverage, and operating efficiency. The Buffett-style quality assessment (65% of Quality) examines ROE consistency, margin stability, and earnings predictability over multiple years.

Quality receives the largest weight because decades of research confirm that business quality is the strongest long-term predictor of stock returns. A great business bought at a fair price almost always outperforms a mediocre business bought at a bargain.

Question: Is the stock priced below what the business is worth?

Three valuation models contribute to the Value axis: Graham Fair Value (45% of Value), Lynch PEG analysis (25%), and Greenblatt Magic Formula (30%). Each model approaches valuation from a different angle — asset-based, growth-adjusted, and earnings-yield-based — so that no single method dominates.

Value receives a deliberately modest weight. A stock can appear cheap for years while the underlying business deteriorates. The Value axis matters, but it is constrained to prevent the formula from chasing value traps.

Question: Is the stock price moving in the right direction?

The Momentum axis measures 6-month price performance, percentile-ranked against every other stock in the coverage universe. Stocks that are rising tend to keep rising in the medium term — this is one of the most robust findings in empirical finance.

Momentum serves two purposes. First, it captures market intelligence: rising prices often reflect information not yet visible in quarterly filings. Second, it acts as a timing filter — a fundamentally excellent stock that the market is actively selling may have problems the models cannot see yet.

Question: Is the stock simultaneously undervalued and gaining momentum?

This formula is the composite score's value-trap killer. If a stock has a high Value score but low Momentum, the Timing axis collapses to the lower of the two. The stock cannot score well overall until the market confirms the value thesis by actually bidding the price higher.

The sweet spot is where both Value and Momentum are elevated: cheap AND rising. This is where the Timing axis adds the most points to the composite.

A bank and a software company cannot be evaluated with the same yardstick. AlphaStocks uses seven sector-specific scoring profiles — General, Bank, REIT, Insurer, Utility, Holding, and Asset Manager — that adjust model weights and input metrics for each sector's unique financial characteristics.

When two stocks from different sectors both score 8.0, they earned those scores through genuinely comparable evaluations, not by being forced through an identical generic filter.

Each model contributes to one or more axes of the composite score:

AlphaStocks validated the composite formula using walk-forward (out-of-sample) testing. The formula was designed on 2021-2023 data, then locked and tested on 2024-2026 data it had never seen. A portfolio of the top 30 highest-scoring stocks, rebalanced monthly, delivered +8.4% annual alphaover the S&P 500 during the out-of-sample period, with a lower maximum drawdown (14.3% vs. 23.9%).

See the full backtest results for methodology and disclaimers.