Methodology
What we actually analyse.
Every report answers the same four questions. What is this business worth, how much are we being asked to pay, how much can it earn on the money it invests, and what could go wrong. Here is what each one means, and what you get in a report.
Concept one
Margin of safety
A valuation is an estimate, not a fact. So we only find a stock interesting when the price sits well below what we think the business is worth. That gap is the margin of safety, and it is what protects you when the estimate turns out to be wrong. Every report states our fair value, the current price, and the size of that gap.
Concept two
Return on invested capital
A business creates value only when it earns more on a pound of capital than that capital costs. A company earning 18% on capital that costs it 9% is compounding your money. One earning 6% on the same capital is quietly destroying it, however fast revenue grows. We measure that spread, and we check whether it is durable or a good year that will not repeat.
The multiple is just your return, upside down
Buffett measures a business by its owner earnings, the cash left over after the spending genuinely needed to maintain the business. Greenblatt does the same thing from the buyer's side with an earnings yield, the profit a company produces set against what you pay to own it. They are two views of one number. Pay 12 times owner earnings and you have bought yourself roughly an 8% annual return before any growth. Pay 25 times and that falls to 4%. This is why the price you pay decides your return as much as the quality of the business does.
Concept three
Liabilities, and how much risk they carry
Debt is not automatically dangerous. What matters is how much of it there is relative to the cash the business reliably produces, when it falls due, and what happens in a bad year. We deliberately measure debt against owner earnings, the cash left for shareholders after the spending needed to keep the business competitive, rather than against a flattering profit measure that adds back interest, tax and depreciation. Depreciation is a real cost, and Munger was blunt about pretending otherwise. A steady business can carry debt that would sink a cyclical one, so we size the obligations against genuine earnings power and say plainly whether the balance sheet is a source of risk or a non issue.
Concept four
Growth and value are the same coin
Treating growth and value as opposing styles is a mistake. Growth is simply one of the inputs that determines what a business is worth. The question is not whether a company grows, it is whether that growth earns more than it costs. Growth on top of a high return on capital compounds value. The same growth on a low return burns cash. We buy durable compounding, and we insist on paying a sensible price for it.
How a report is made
From screen to signed off.
We start with a disciplined screen for durable businesses at a defensible price: strong returns on capital, sensible balance sheets, honest capital allocation, and a valuation that leaves room to be wrong. Most candidates never become a report, and that is the point.
The work itself is built from primary sources. We read the filings and the audited financials rather than the headlines, build the model, and write the thesis, the moat analysis and the risk register from that. A human analyst then pressure tests the argument, checks the numbers against the source documents, and makes sure the bear case is argued as honestly as the bull case. Nothing is published until someone is willing to put the firm's name on it.
We commit to at least 20 reports a year, one every two weeks. Consistency is part of the product. You should never have to wonder whether research is coming.
Our standards
We work only from primary sources and hold every report to the same bar: a thesis that can be argued, a model that can be checked, and risks stated plainly. We accept no payment from the companies we cover, and any position or conflict is disclosed in the report itself. When the evidence changes, our view changes with it.
Our rating scale
Three honest verdicts.
The thesis is well supported, the margin of safety is real, and the risks are understood and acceptable.
A credible opportunity with one meaningful open question, usually valuation, execution, or a live risk.
An interesting company where the price, the balance sheet, or the risk profile keeps us on the sidelines.
Our ratings describe conviction in a thesis at a point in time and price. They are not personalised recommendations and do not account for your circumstances. ValueStock publishes independent research for informational purposes only. It is not investment advice and not an offer to buy or sell any security. See our full disclosures.