We rate every stock's moat from 1 to 5 stars based on 10 years of ROIC data, gross margin trends, and switching cost analysis. Wide moat = durable profits. No moat = race to the bottom.
"In business, I look for economic castles protected by unbreachable moats."
— Warren Buffett
Fully quantitative. Fully transparent. Every ticker page shows the exact values used in the calculation.
Return on Invested Capital over 10 years. We measure the mean level and the coefficient of variation (stability). Consistently high ROIC signals a real structural advantage — not luck or a one-time event.
Expanding margins = pricing power and strengthening position. Compressing margins = commoditization and moat erosion. The direction matters as much as the level.
Approximated from gross margin level. 60%+ margins typically indicate ecosystem lock-in, regulatory barriers, or integration complexity. Below 20% = commoditized, customers switch freely.
Morningstar vs. FairValueLabs: Morningstar uses qualitative analyst judgment (wide / narrow / no moat). We use a quantitative model (1-5 stars from ROIC + margins). Both have value — Morningstar captures nuance a formula can miss; ours is transparent, auditable, and updates automatically. For most investors, using both is ideal.
Different moat types, same result: sustained above-average returns that competitors cannot replicate.
Visa does not lend money or take credit risk — it operates the payment network, earning a tiny fee on every transaction. Each new merchant strengthens the network for every cardholder. Classic network effects.
The world's most recognized brand plus a global distribution network no competitor can replicate. A century of stable ROIC and gross margins that barely wavered through recessions.
iPhone + Mac + iPad + Watch + Services create a walled garden where switching costs are enormous. Once inside the ecosystem, leaving means replacing everything. High ROIC, expanding services margins.
Understanding why a moat exists helps you judge whether it will endure.
Each user makes the product more valuable for everyone. Payment networks (V, MA), social platforms, marketplaces.
Leaving is painful — data migration, retraining, ecosystem replacement. Enterprise software, healthcare devices.
Brands (KO, PG), patents (pharma), regulatory licenses (utilities). Cannot be replicated with money alone.
Scale, process, or location that produces at lower cost than competitors. WMT, COST — volume-driven unit economics.
Markets too small for a second player. Utilities, pipelines, niche industrials — competitors would destroy returns for everyone.
The most dangerous situation: owning a stock you believe has a wide moat when the moat is actually narrowing. By the time the market notices, the stock has typically dropped 40-60%.
Returns on capital falling for 3+ consecutive years — the quantitative fingerprint of a narrowing moat.
Forced to compete on price rather than differentiation. Gross margins trending down = pricing power evaporating.
Competitors gaining ground despite increased spending. The moat is getting shallower.
Companies with 3.5+ star moat ratings — the strongest competitive advantages in our coverage.
Network effects, switching costs, intangible assets, cost advantages, and efficient scale explained.
A company's ability to maintain competitive advantages and earn above-average returns for an extended period. Popularized by Warren Buffett. Companies with wide moats sustain pricing power, loyalty, and margins against competition.
Moat quality is one input, not the only one. A wide-moat stock at an extreme premium may underperform a narrow-moat stock at a deep discount. The ideal is wide moat + fair price + safe Z-Score — the Strike Zone.
Yes. Technology disruption, regulatory changes, and competitive innovation can erode even the widest moats. We track ROIC trends to detect erosion early — 3+ years of decline is a strong warning signal.
A wide moat means nothing if the company is in financial distress. Check the Z-Score.
A wide moat at any price is not a good investment. Check the margin of safety.
Wide-moat dividend payers are the holy grail of income investing. Check sustainability.