Quality score: how to measure a good business

Quality is a 0 - 100 score that captures whether a business is actually worth owning for the long term - independent of price.

What it measures

• Stability - how steady gross margin and return on invested capital have been through good years and bad, and how often the business turned its profit into positive free cash flow.
• Acceleration - whether margins, revenue growth and earnings growth are picking up or fading against the company's own longer record.
• Long-term growth - how fast revenue and earnings per share have compounded over many years, not over one good stretch.
• Investment intensity - how much of each dollar of revenue goes back into research and development and into selling and brand building.

Each one is ranked against the rest of the universe, so a company is measured against the roughly thousand others we cover, not against a fixed scale.

What a high score looks like

Garmin scores 78.0 on quality. The median company in our universe scores 47.1. Every reason for the gap is a reported number, and not one of them is a forecast. (Scores and figures as of 12 October 2026, from each company's annual reports for 2015 to 2025.)

Garmin's gross margin stayed between 55.6% and 59.5% in each of the last ten financial years, a range of under four points. The typical company's gross margin moved about eight points over the same decade. Its return on invested capital never fell below 15% in those ten years and averaged 19.9%, against 9.3% for the median company. Revenue compounded at 9.9% a year from 2015 to 2025, against 6.6% for the median company.

Albemarle scores 21.4. Its gross margin went from 42.0% in 2022 to 1.2% in 2024 and back to 13.0% in 2025, as lithium prices rose and fell under it. Its return on capital swung from 20.1% to minus 10.9% in two years, and it produced positive free cash flow in three of the last ten years, where the median company did in all ten. That is not an accusation about how Albemarle is run. A commodity producer lives on a price it does not set, and quality is measuring exactly that shape.

Two things follow from that. A low quality score is a description rather than a verdict, and it is coloured heavily by the industry a company happens to sit in, which is why the score is most useful compared inside a sector. And a high score says nothing whatever about price. A great house is still a bad buy at double what it is worth.

How to read it

A higher score points to a business worth owning for years; a lower one is a flag to look closer, not a verdict on its own. Because quality is deliberately blind to price, always read it next to the fair-value gap - the next section explains why.

Common questions

Does a high quality score mean a stock is worth buying?

No. Quality is measured without reference to price, on purpose, so an excellent business trading at an absurd multiple still scores well here. It has to be read next to the value margin of safety, which is the pillar that knows what you are paying.

Why hold each input up against a full cycle?

One good year is noise. A business that earned a strong return on capital through a downturn and a recovery has demonstrated something a single trailing year cannot, and the same is true of margins that held when pricing power was tested.

What if a company has only a few years of reports?

It gets no quality score rather than a guessed one. Stability and long-term growth need years of reported numbers, and a short record cannot show them.

Educational and proprietary. This explains what our research does, not the exact formula behind it, and it is not personalised investment advice. See the full disclaimer.