- 1Each factor score ranges from 0-100, representing the stock's percentile rank for that factor
- 2A score of 80 means the stock ranks better than 80% of other stocks on that specific factor
- 3Factor scores are independent — a stock can score high on profitability but low on momentum
- 4Individual factor scores reveal a stock's specific strengths and weaknesses
- 5The composite score weights all six factors, but individual scores tell the deeper story
#The Six Factor Scores Explained
1. Profitability Score (30% of composite)
What it measures: Cash-based operating profitability — how efficiently the company converts revenue into cash profits
High score (80+): The company generates strong, sustainable cash profits relative to its asset base. Think Microsoft, Visa, or Apple — companies with dominant market positions and pricing power.
Low score (below 20): The company struggles to generate cash profits. This could be an early-stage company investing for growth, or a mature company with structural problems.
What to look for: Consistently high profitability scores across quarters suggest a durable competitive advantage (moat).
2. Momentum Score (25% of composite)
What it measures: Price performance over the past 12 months (excluding the most recent month)
High score (80+): The stock has been in a strong uptrend. Academic research shows this trend is likely to continue for the next 3-12 months.
Low score (below 20): The stock has been declining. Past losers tend to continue losing in the short to medium term.
Caution: Momentum is the most volatile factor. High-momentum stocks can reverse sharply during market stress. That's why we combine momentum with other factors.
3. Value Score (15% of composite)
What it measures: Whether the stock is cheap or expensive relative to its intangible-adjusted book value
High score (80+): The stock trades at a low price relative to its assets (including capitalized R&D and organizational capital). It may be undervalued.
Low score (below 20): The stock trades at a high premium to its adjusted assets. It may be overvalued, or the market may be pricing in exceptional future growth.
Important: Value is a long-term factor. A stock can remain "expensive" for years if growth justifies the premium. Value works best over 3-5 year horizons.
4. Low Volatility Score (10% of composite)
What it measures: Price stability — how much the stock bounces around day to day
High score (80+): The stock is very stable with low daily price swings. Think utilities, consumer staples, and large-cap dividend stocks.
Low score (below 20): The stock is highly volatile with large daily swings. Think biotech, meme stocks, and speculative tech.
Counterintuitive finding: Low-volatility stocks actually deliver HIGHER returns than high-volatility stocks over time. This is the low-volatility anomaly.
5. Investment Score (10% of composite)
What it measures: Capital discipline — how aggressively the company is growing its asset base
High score (80+): The company is growing conservatively. Management is disciplined about capital allocation, investing only when returns justify it.
Low score (below 20): The company is aggressively expanding — through acquisitions, capital spending, or new ventures. This often signals empire-building or overinvestment.
Why inverted: Unlike most metrics, LOWER asset growth earns a HIGHER score. Conservative companies tend to generate better shareholder returns.
6. Short Interest Score (10% of composite)
What it measures: How heavily the stock is being shorted by sophisticated investors
High score (80+): Few investors are betting against this stock. Smart money doesn't see major problems.
Low score (below 20): The stock is heavily shorted. Sophisticated investors with high conviction believe it's overvalued or facing fundamental issues.
Important: High short interest doesn't mean a stock will decline — short squeezes can cause dramatic rallies. But it's a warning flag worth investigating.
#Reading Factor Score Combinations
The "Perfect" Stock (Rare)
- Profitability: 90+ (highly profitable)
- Momentum: 80+ (strong uptrend)
- Value: 70+ (reasonably priced)
- Low Vol: 60+ (stable)
- Investment: 70+ (disciplined)
- Short Interest: 80+ (not shorted)
Finding stocks that score well on ALL six factors simultaneously is extremely rare — that's what makes 5-star stocks special.
The "Value Trap" Warning
- Profitability: Below 30 (weak profits)
- Value: 90+ (very cheap)
A stock that's cheap AND unprofitable is often cheap for a reason. This is the classic "value trap" — and it's why we weight profitability (30%) more than value (15%).
The "Momentum Chaser" Warning
- Momentum: 95+ (extreme uptrend)
- Value: Below 10 (very expensive)
- Low Vol: Below 10 (very volatile)
High momentum with extreme valuation and volatility is a speculative signal. These stocks can crash hard during reversals.
#How to Use Factor Scores in Research
- 1Start with the composite score — it gives you the overall picture
- 2Dig into individual factors — understand WHY the stock ranks where it does
- 3Look for red flags — any single very low score deserves investigation
- 4Compare within sectors — a tech stock at value 60 is "cheap for tech"
- 5Track over time — are scores improving or deteriorating?
#Further Reading
Last updated: February 1, 2026