Scores are algorithm-generated research tools, not investment recommendations.
Buffett-Style Quality Assessment
A systematic evaluation of competitive moats measuring ROE consistency, margin stability, debt levels, and earnings predictability -- the financial fingerprint of a durable business.
Score output: Strong / Attractive / Neutral / Reject
What is the Buffett Score?
The Buffett Score on AlphaStocks is a data-driven quality assessment that identifies the financial characteristics of companies with durable competitive advantages, or "moats." Inspired by Warren Buffett's investment philosophy of finding wonderful businesses at fair prices, the model evaluates four dimensions: ROE consistency over multiple years, margin stability and trends, debt relative to earnings, and earnings predictability. Unlike binary pass/fail systems, each dimension is evaluated on a spectrum because the difference between 15% ROE and 35% ROE matters enormously. The Buffett Score is the single most influential model in the entire AlphaStocks composite formula, contributing 65% of the Quality axis at 40% composite weight, for an effective weight of 26% -- reflecting the research consensus that business quality is the strongest long-term predictor of stock returns.
How does the Buffett Score work?
The model evaluates four dimensions of business quality. First, Return on Equity (ROE) Consistency: it calculates the median ROE across available annual periods and measures its coefficient of variation (standard deviation divided by mean). A high median with low variance scores well, indicating a genuine competitive advantage. A high median with wild swings scores poorly, suggesting cyclicality rather than a true moat. For general sectors, strong means median ROE above 15% with CV below 30%.
Second, Margin Stability: the model calculates the trend (slope) of operating margins over the past three to five years. A flat or upward slope scores well, indicating pricing power. A downward slope is penalized as an early warning that the moat may be narrowing. Companies with margins below industry median are flagged even if stable.
Third, Debt Relative to Earnings: the model computes debt-to-owner-earnings (net income plus depreciation minus maintenance capex) and evaluates whether the company could pay off all debt within a few years. Comfortable is within three to four years; above six to eight years raises a flag. Debt thresholds differ dramatically by sector -- a bank with 10:1 debt-to-equity is normal, while the same ratio for a software company would indicate crisis.
Fourth, Earnings Predictability: the R-squared of a linear regression on annual EPS over available history measures how consistently earnings have grown. R-squared above 0.7 means a smooth growth path. Any year of losses in the recent five-year window is a significant negative signal. Together, these four dimensions identify the financial footprint of a moat: high consistent ROE, stable margins, low leverage, and predictable earnings.
What does Buffett look for in a stock?
The Buffett model evaluates four dimensions of business quality, each on a spectrum rather than binary. Here is what each dimension looks for:
ROE Consistency
Pass
Median ROE above 15% over multiple years with coefficient of variation below 30%. Indicates a genuine competitive advantage producing above-average returns year after year.
Fail
Median ROE below 8% or highly erratic returns. Suggests the business lacks a durable moat, or returns depend on cyclical factors rather than competitive positioning.
Margin Stability
Pass
Operating margins flat or trending upward over three to five years. Indicates pricing power -- the company maintains profitability even as costs rise or competition intensifies.
Fail
Operating margins declining over the period. Early warning signal that the moat may be narrowing, competitors are encroaching, or costs are rising faster than revenue.
Debt Relative to Earnings
Pass
Total debt payable within three to four years of current owner earnings. Low leverage means the company can weather recessions, invest through downturns, and emerge stronger.
Fail
Debt exceeds six to eight years of owner earnings. High leverage amplifies returns in good times but creates existential risk in bad times.
Earnings Predictability
Pass
R-squared above 0.7 on annual EPS regression with no loss years in the recent five-year window. Smooth growth path enables confident valuation.
Fail
R-squared below 0.3 or years of negative earnings. Erratic earnings make the company extremely difficult to value and suggest the moat may just be cyclical luck.
Overall Moat Rating
Pass
Strong or Attractive rating -- scoring well across most or all four dimensions. Quantitative profile of a wide-moat business with durable competitive advantages.
Fail
Reject rating -- weak in multiple dimensions. Low or erratic returns, declining margins, high debt, or unpredictable earnings. The numbers do not support a quality thesis.
How AlphaStocks uses Buffett
The Buffett-Style Quality Assessment contributes 65% of the Quality axis, which carries 40% of the composite score, giving it an effective weight of 26%. This makes it the single most influential model in the entire formula -- by design. Business quality is the strongest long-term predictor of stock returns.
It pairs with the Piotroski F-Score (35% of Quality), which provides a complementary, more granular check on current-year financial health. A company can have a strong moat (Buffett: Strong) but a bad year operationally (Piotroski: 4/9). The combination catches both the forest and the trees.
The Quality axis at 40% is the largest component of the composite score. A stock rated "Strong" by Buffett with an 8/9 Piotroski score will dominate the Quality axis and significantly boost its overall composite score, even if the Value or Price Trend axes are moderate.
Buffett effective weight = 65% × 40% = 26% of the composite scoreCurrent top stocks by Buffett
The Buffett-Style Quality Assessment model is evaluated for all 1,595 stocks in our coverage. You can filter the full rankings table to see which stocks currently score highest on this model and compare them across all five investment frameworks.
Frequently Asked Questions
What does the Buffett Score measure on AlphaStocks?
The Buffett Score measures four dimensions of business quality that indicate durable competitive advantages (moats): ROE consistency over multiple years, operating margin stability and trends, debt levels relative to owner earnings, and earnings predictability. It produces a five-tier rating from Strong to Reject, with Strong indicating all the financial hallmarks of a wide-moat business.
Why is the Buffett Score the highest-weighted model in the composite?
At 26% effective weight (65% of the 40% Quality axis), the Buffett Score reflects decades of academic and practitioner evidence 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.
How does AlphaStocks handle sector differences in the Buffett model?
AlphaStocks uses seven sector-specific profiles. Banks have adjusted ROE expectations (15% is excellent) and use capital adequacy instead of traditional debt metrics. REITs evaluate FFO instead of net income. Utilities have lower ROE thresholds reflecting rate regulation. Insurers separate underwriting from investment performance. This prevents penalizing entire industries for structural characteristics.
Can a high-growth company score well on the Buffett model?
It depends. Companies that sacrifice current margins to invest aggressively in growth may receive lower scores because the model penalizes margin compression and volatile earnings. However, high-growth companies with consistent profitability (like dominant tech platforms) can score Strong. The composite formula also balances this through Lynch-Style PEG analysis, which specifically rewards growth.
What is the difference between the Buffett Score and the Piotroski F-Score?
The Buffett Score evaluates broader competitive moat characteristics over multiple years using a spectrum-based approach. The Piotroski F-Score is a current-year health check using nine binary signals. A company can have a strong moat (Buffett: Strong) but a bad year (Piotroski: 4/9), or weak moat but a great year. Together they capture both long-term competitive position and current financial health.
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Every stock evaluated by Buffett-Style Quality Assessment and four other proven investment models. Updated with every SEC filing.
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Model names reference the published investment methodologies of their respective authors. AlphaStocks is not affiliated with, endorsed by, or sponsored by Warren Buffettor any related entities. Our implementation is an interpretation of publicly described principles and may differ from the original author's approach.
AlphaStocks provides investment research and analysis, not investment advice. Past performance does not guarantee future results. Always do your own due diligence before making investment decisions. Data sourced from SEC EDGAR and Alpaca Markets.