Criteria Glossary

The dictionary for the scoring system.

Every stock gets judged against the same checklist. This page explains what each criterion means, what good looks like, and what makes something a caution or fail.

Showing 59 of 59 criteria

Quality (12)Growth Prospects (7)Nice to Have (40)

Quality

12 criteria

No Mgmt/Accounting Issues

No Alleged Accounting Irregularaties / Mgmt Integrity Issues

Review annualSource Googling

Definition

Binary pass/fail on whether the company appears free of serious accounting irregularities or management-integrity concerns.

No Alleged/ Confirmed Accounting Irregularaties or Mgmt Integrity Issues from Reputable Source/ Short Seller Report that would Cause Entire Biz to Fold Check "Report of Independent Registered Public Accounting Firm" (check Wirecard and the others)

Examples from the notes

TN: ENE, WCAGY, VRX, JYNT, NKLA, EAR, LK, YALA FP: ENPH

I Like the Product

I/ Friends have used and liked the products/ I see the product listed in job postings as a requirement.

Review annualSource Qualitative

Definition

Binary pass/fail on whether the product has real-world validation through user experience and/or appears as a requirement in job postings.

Examples from the notes

FN: INMD, TTD, ADYEY, CHTR | TP: COST, ZM, SPOT, CMG | TN: TDOC, POSH, WISH, TWOU, All airlines, ABNB, PCG, HTZ, CMCSA, CHTR, UAL, T

Biz can be ELI5'ed

I can ELI5 the biz to a 5 year old.

Review annualSource Qualitative

Definition

Binary pass/fail on whether the business model is simple enough to explain clearly in plain language.

Can explain the biz in 1 sentence and to a 5 year old.

Company is not a schemer

Company is not a schemer. Does not profit from fucking over customers.

Review annualSource Qualitative

Definition

Binary pass/fail on whether the company appears aligned with customers rather than exploiting them as a core business practice.

The company does not feel schemey/slimey. The company does not profit by scheming/fucking over their customers.

Examples from the notes

FN: CMCSA, FB, PLNT, WFC | TN: COST

Revenue >$100m ttm

Review quarterlySource 3 Financial Statements

Definition

Binary pass/fail on whether trailing twelve month revenue exceeds $100 million.

Examples from the notes

TN: RIVN, LCID, WKHS, RIDE, SPCE

Fw Rev Growth >20%

Fw 12m Revenue Y/Y Growth >20%

Review quarterlySource 3 Financial Statements

Definition

Binary pass/fail on whether forward twelve month consensus revenue growth exceeds 20% year over year.

New: 5 if 20%+ 0 if 15-20%, -5 if Growth is <15%

Examples from the notes

This way you get out of slow af value traps eg. FIGS, ZM, ZG, BA, PYPL, INTC

Rev Growth >20% last 3yrs

Revenue Y/Y Growth >20% the last 3 yrs

Review annualSource 3 Financial Statements

Definition

Binary pass/fail on whether annual revenue growth exceeded 20% in each of the last three years.

EBIT > 0 ttm

EBIT > 0 ttm (No FCF > 0, too lenient eg TDOC, TWLO)

Review quarterlySource 3 Financial Statements

Definition

Binary pass/fail on whether trailing twelve month EBIT is positive.

Examples from the notes

FP: COIN, UPST, GDRX FN: NET, COUP, MDB, SE, SNOW, BILL, CVNA | TN: NVTA, JMIA, SPCE, CVNA

Founder has Skin in the Game

Skin in the Game: Founder/Family/CEO effectively controls/ has >=10% of company

Review annualSource DEF 14A

Definition

Binary pass/fail on whether founder, family, or CEO ownership/control is at least 10% or effectively controlling.

Either: (>=51%+ voting rights, >=10% share ownership, Largest shareholder across all entities incl VCs, banks, Vanguard, Fidelity) DEF 14A/ 6-K Kws: Mgmt Information Circular, Executive Officers and Directors, Beneficial Owners, Security Ownership

No Binary Events

No Binary Events that would cause Entire Biz to Fold (All Biotech -5, SRPT Drug Death)

Review annualSource Annual Report / Googling

Definition

Binary pass/fail on whether the business avoids single binary events that could collapse the entire company.

No Binary Events that would 50/50 Entire Biz to Fold: (Losing Patent Protection, Legal Ruling)

Examples from the notes

TN: IRTC, Any SMID biotech

No External Dependencies

Rev is not at the Mercy of Uncontrollable External Dependencies (High Qual Revs): Fear/Trust (Bank Runs, FRC), Interest Rates (Lending, UPST), Commodity (Oil, Lithium, Uranium, Gold), Crypto (COIN, MSTR), China Govt (TAL, EDU)

Review annualSource Annual Report / Googling

Definition

Binary pass/fail on whether revenue is insulated from major uncontrollable external dependencies.

No Overreliance on: Commodity, Crypto, Interest Rates

Examples from the notes

TN: All oil stocks, All banks (UPST, SIVB, FRC/CS, SI), Crypto (COIN/SI)

Customer + Company + Supplier Alignment

Review annualSource Qualitative

Definition

Scores whether the company creates aligned incentives across customers, the company, and suppliers. 3 if all 3 are aligned. 0 if 2 out of 3 are aligned. -3 if only 1 out of 3 is aligned. Examples: Customer + Company + Supplier Alignment: COST, NFLX. No customer alignment: banks, HOOD, DKNG, EVO. No supplier alignment / cooperative vs extractive: AMZN, WMT. Neither: LYV, UNH.

Growth Prospects

7 criteria

ROIC >20%

ROIC >20% (Rev growth still king, PYPL LULU have 40% ROICs, stocks -80%)

Review quarterlySource 3 Financial Statements

Definition

Binary pass/fail on whether return on invested capital exceeds 20%.

Kw: Commitments and Contingencies, Operating Lease Proposed: If you have NI > 0 for 3 yrs and ROIC <10%, -5 pts?

Examples from the notes

TP: POOL, LULU, EVO, GOOGL, COST.

No Share Dilution

No Extreme Dilution / Is Share Cannibal

Review annualSource 3 Financial Statements

Definition

Binary pass/fail on whether the company avoids extreme dilution and ideally shrinks share count through buybacks.

No Extreme Dilution (<3%: 1 / 3-5%: 0 / 5-10%: -1 / 10%+: -3)/ Buybacks "Share Cannibals"

Examples from the notes

TP: AZO, CSU, TN: SNOW "share capital"

FCF ttm > 0

FCF ttm (SBC subtracted) > 0

Review quarterlySource 3 Financial Statements

Definition

Binary pass/fail on whether free cash flow remains positive after subtracting stock-based compensation.

No Industry Disruption

No Industry Disruption / Existential Risk is Not Imminent

Review annualSource Qualitative

Definition

Binary pass/fail on whether existential industry disruption appears non-imminent.

No Industry Disruption: (Active / Possible / None)

Examples from the notes

FN: TGT, BBY | TN: M, JCP, BBBY, SHLD, Blockbuster

10x Organic Growth Runway

10x Organic Growth Runway Can growth easily clip at >20% next 10 yrs? Creating new mkt > Fighting for survival

Review annualSource Qualitative

Definition

Binary pass/fail on whether the company appears to have an easy 10x organic growth runway with long-duration >20% growth potential.

Organic Growth Runway: (G.D.P. / 2x or 3x G.D.P. / 20%+) (1 or -3!) Can you see the stock beating SPY on a regular basis? Or only serves a niche market and its inevitable fate is ABNB, ZM, ZG. If ur spending 5+ mins thinking about it, its a -3. Revenue hasnt been pulled forward. Theres still plenty of runway left.

Examples from the notes

TN: ARRY, ZM, DOCU, TDOC,

Acceleration Not Priced in

Analysts have not priced in accelerating growth

Review quarterlySource Qualitative

Definition

Binary pass/fail on whether accelerating growth appears underappreciated by analysts and valuation.

Analysts have not priced in a catalyst that accelerates growth from current expectations. Easiest way to make money if you can spot this.

Pricing Power

Product is Not a Commodity: If they raised the price, you Still wouldnt switch to a competitor. (Pricing Power) (eg Solar panels)

Review annualSource Qualitative

Definition

Binary pass/fail on whether the product has meaningful pricing power and is not commodity-like.

Examples from the notes

SPOT, COST

Nice to Have

40 criteria

Debt/Equity < 2

Review annualSource 3 Financial Statements

Definition

Binary pass/fail on whether debt-to-equity is below 2.

CFO > NI

Review annualSource 3 Financial Statements

Definition

Binary pass/fail on whether cash from operations exceeds net income.

Capex < 15%

Capex % of Gross Profit: <15%

Review annualSource 3 Financial Statements

Definition

Binary pass/fail on whether capex is less than 15% of gross profit.

Capex/GP <15% (Capex/Sales <10%)

SBC < 15%

SBC % of Gross Profit: <15%

Review annualSource 3 Financial Statements

Definition

Binary pass/fail on whether stock-based compensation is less than 15% of gross profit.

SBC <15% of Gross Profit, (<10% of Rev)

Examples from the notes

TN: SNOW, DT

S&M < 50%

S&M % of Gross Profit: <50%

Review annualSource 3 Financial Statements

Definition

Binary pass/fail on whether sales and marketing is less than 50% of gross profit.

S&M % of Gross Profit: <50% (Customer Acquisition: Expensive / Normal / Word Of Mouth) (0 - 5) Kw: advertising, marketing

Examples from the notes

TN: AYX

R&D > 20%

R&D % of Gross Profit: >20%

Review annualSource 3 Financial Statements

Definition

Binary pass/fail on whether research and development exceeds 20% of gross profit.

R&D % of Gross Profit >20% (TBD if this correlates with higher mkt cap)

Examples from the notes

TP: TEAM, FN: AAPL?

Fw EV/GP <13x

Review weeklySource 3 Financial Statements

Definition

Binary pass/fail on whether forward enterprise value to gross profit is below 13x.

Valuation: Fw EV/GP <13x (imputed from 10x EV/Sales, see imputed schedule in notes)

Examples from the notes

FN: GOOGL, ZM | TN: FB

Goodwill < 15%

Goodwill / Total Assets < 15%

Review quarterlySource 3 Financial Statements

Definition

Binary pass/fail on whether goodwill is less than 15% of total assets.

% of Goodwill out of Total Assets < 15% (<5% of mkt cap). 1) Lots of acqusitions/ non organic growth 2) Higher risk of writedowns. FP: BKNG in 2015 (32%), BKNG in 2005 (46%), FISV (46%), ADI (86%) | TN: TDOC (82%), GE (33%)|

ROIC > WACC

Review quarterlySource 3 Financial Statements

Definition

Binary pass/fail on whether return on invested capital exceeds weighted average cost of capital.

ROIC Uptrend

ROIC % has grown the last 3 yrs

Review annualSource 3 Financial Statements

Definition

Binary pass/fail on whether ROIC increased in each of the last three years.

EBIT Uptrend

Nominal EBIT has grown the last 3 yrs

Review annualSource 3 Financial Statements

Definition

Binary pass/fail on whether nominal EBIT increased in each of the last three years.

FCF Uptrend

Nominal FCF has grown the last 3 yrs

Review annualSource 3 Financial Statements

Definition

Binary pass/fail on whether nominal free cash flow increased in each of the last three years.

CFF Positive Developments

CFF: Rising Dividend, Debt Repayment

Review quarterlySource 3 Financial Statements

Definition

Binary pass/fail on whether financing cash flow reflects rising dividends and debt repayment.

Other Shareholder-Friendly Actions (other than Share Buyback): Rising Dividend, Debt Repayment

No Customer Concentration

No Customer Concentration (% or more)

Review quarterlySource Annual Report

Definition

Binary pass/fail on whether the company avoids material customer concentration.

No Customer Concentration: (-1 per >10% of Revenue Customer) Keywords: Credit Risk, Concentr, largest, top ten, accounted for, % of, significant custom, single custom, individual custom, large customer, % of total rev, customer base

Examples from the notes

TN: AI, PTON, AFRM, FSLY

No Receivables Concentration

No Acc Receivable Concentration

Review quarterlySource Annual Report

Definition

Binary pass/fail on whether the company avoids material accounts receivable concentration.

No Acc Receivable Concentration >10% Kws: Accounts receivable, trade receivable, accounted for, Commitments and Contingencies

Recurring Revs

75%+ of Rev = Recurring

Review annualSource Annual Report

Definition

Binary pass/fail on whether at least 75% of revenue is recurring.

75%+ of Rev = Recurring Keywords: recur, subscription, membership, category

Majority US Revs

<75% Non USD Revenue

Review annualSource Annual Report

Definition

Binary pass/fail on whether non-USD or non-domestic revenue exposure is below 75%.

No Concentrated EM Foreign Currency Risk: Rev is <75% Foreign. =1-US/Total Mostly US or Diversified revs OK. Kw: Geographical information, Revenue by country, Segment

Organic Rev Growth

20% Rev Growth is Organic

Review annualSource Annual Report / Googling / Acquisition History

Definition

Binary pass/fail on whether 20% revenue growth is organic rather than acquisition-driven.

20% Rev Growth is Organic / No Growth by Acquisition: (Exclusively, Partially, None) (-4, -2, 0). Keywords: acquir, acquisition, merger, business combinations. See M&A Spend in Investing CF.

Examples from the notes

FN: HZNP FB BKNG | TN: VRX, ATER.

Developed Market HQ

HQ in MSCI DM

Review rareSource Company Characteristics

Definition

Binary pass/fail on whether headquarters is in an MSCI developed market.

(-3 if not, CCP can ruin entire biz in snap of fingers)

Examples from the notes

FN: MELI | TP: SHOP TEAM ADYEY, TN: TAL EDU YNDX STNE JMIA BABA

Mission Statement Quality

Strong/Inspiring Mission Statement

Review rareSource Company Website

Definition

Binary pass/fail on whether the company has a strong or inspiring mission statement.

Mission Statement? On About page? (Simple, Inspirational, Optionalable) (0 - 3)

Founder in C Suite

Founder is still in C-Suite

Review annualSource DEF 14A

Definition

Binary pass/fail on whether the founder still holds a C-suite role.

Soul in the game: Founder is still in the C Suite. 0.5 pts: Family Run/Long Tenured CEO (10+ yrs) (0 - 4)

CEO is Technical

Founder/CEO is Technical/Operator, not just a MBA

Review annualSource DEF 14A

Definition

Binary pass/fail on whether the founder or CEO is a technical or operator type rather than purely managerial.

Founder/CEO is Technical. Not just a MBA. An Operator, not just a Finance person. Software = CS Bg, Food = Restaurant Bg, etc.

Glassdoor

Glassdoor/Trustpilot 3.9+ stars, 75%+ CEO approval

Review annualSource Googling

Definition

Binary pass/fail on whether employee review metrics clear the stated thresholds.

Glassdoor/Trustpilot Ratings: n > 50, 75%+ CEO approval, 3.9+ stars overall

Examples from the notes

TN: GOCO, GSKY

Dogfooding

Dogfooding: Founder/CEO uses co's product on a regular basis

Review annualSource Googling

Definition

Binary pass/fail on whether the founder or CEO actively uses the company's product.

Founder/CEO uses co's product on a regular basis (eg. Elon TSLA TWTR)

Annual Letter

CEO/Founder writes an Annual Shareholder/Founder's Letter authentically their own voice (BRK/A, AMZN)

Review annualSource Googling

Definition

Binary pass/fail on whether leadership writes an authentic recurring shareholder or founder letter.

Annual Shareholder/Founder's Letter clearly written by CEO/Founder. Issued separately from 10K, S-1 letter doesnt count

Examples from the notes

TP: AMZN, BRK.A

Founded Recently

Founded >=2010

Review rareSource Googling

Definition

Binary pass/fail on whether the company was founded in or after 2010.

Founded recently (15 yrs ago, 2009+)

Examples from the notes

FN: AAPL | TN: ARRY, ZYXI, BLFS, GAN

No Complex Financials

No Complicated Financials / Financial Enginering

Review rareSource Qualitative

Definition

Binary pass/fail on whether the financials are straightforward and not heavily engineered.

No Complicated Financials. Doesn't smell like Financial Enginering

Examples from the notes

TN: Many. Ull know when you see it. VFF, STNE, SAFE, SE

Liquid

>100K shares per day

Review rareSource Qualitative

Definition

Binary pass/fail on whether average daily trading volume exceeds 100,000 shares.

Must be liquid!

Network Effects

Review annualSource Qualitative

Definition

Binary pass/fail on whether the business benefits from network effects.

Product gets more valuable as more ppl use it. None / Weak / Strong? Eg. User engagement increases with a larger player base.

Product Ecosystem

Review annualSource Qualitative

Definition

Binary pass/fail on whether the company has a meaningful product ecosystem.

Eg. Leading companies offer a range of interconnected games and services, enhancing user retention.

Switching Costs

Review annualSource Qualitative

Definition

Binary pass/fail on whether customers face meaningful switching costs.

High costs to switch to a competitor or you as a customer find it v hard to switch to another.

Examples from the notes

TP: ORCL, AMZN, MSFT, GOOGL Clouds, SPOT vs. AAPL music

Durable Cost Advantage

Review annualSource Qualitative

Definition

Binary pass/fail on whether the company has a durable cost advantage.

Economies of scale and proprietary technologies can provide cost advantages. Scale / Distribution / Physical Location / Vertical Integration

Intangibles

Review annualSource Qualitative

Definition

Binary pass/fail on whether the company benefits from strong intangible assets such as brand or IP.

Premium Brand, Lots of Patents, Trade Secrets, Licenses

High Barrier to Entry

Product itself has High Barrier to Entry

Review annualSource Qualitative

Definition

Binary pass/fail on whether the product or business model has high barriers to entry.

Product itself (not the network effect) has High Barrier to Entry/ Not a commodity. Competitors struggle to replicate, resulting in inferior product. Eg. High development costs and established franchises create barriers.

Examples from the notes

TP: TSLA, NVDA, TSM, ASML | TN: CGC, BYND

Vibe Coded App Resistance

Resistant to Low-Capital Competitive Displacement (eg. Vibe-Coded App)

Review annualSource Qualitative

Definition

Binary pass/fail on whether low-capital entrants are unlikely to displace the business.

Product cant be vibe coded and replaced easily

Crazy Loyal Fan Base

Crazy, Loyal Fan/Customer Base

Review annualSource Qualitative

Definition

Binary pass/fail on whether the company has an unusually loyal customer or fan base.

Fervent, almost Crazy, Loyal Fan/Customer Base

Examples from the notes

TP: Android, COST, SPOT

Moat Direction

Review annualSource Qualitative

Definition

Binary pass/fail on whether the moat appears stable to improving rather than deteriorating.

Narrowing/Threatened vs. Stable/Widening. Eg. Innovation influences competitive advantage.

Examples from the notes

TP: BBRY when iPhone came out, YHOO when GOOGL overtook rev, GOOGL moat threatened by Chatgpt

Leader in Industry

Review annualSource Qualitative

Definition

Binary pass/fail on whether the company is a leader in its industry.

Leader/ First Mover In Important, Emerging/ New Industry And/Or Industry Disruptor

Examples from the notes

FP: UBER, Moviepass | TP: AMZN, SHOP, NFLX, ABNB

Optionality

Review annualSource Qualitative

Definition

Binary pass/fail on whether the company has credible additional upside paths beyond the core business.

Diversification into new industries and platforms offers growth opportunities. Optionality: None / Within Industry / New Industry.

Operating Leverage Ahead

Review annualSource Qualitative

Definition

Binary pass/fail on whether future operating leverage appears likely.

If High fixed costs, increased sales can lead to higher profitability. Co in "Easy" Industry, Capital Light, Macro/Industry Tailwinds?

Examples from the notes

Eg. tech, biotech, medtech, fintech, insurance