The Buffett-style score (0–100)
Each stock is rated on four criteria Warren Buffett is known for. Each gets a sub-score from 0 to 10 (margin of safety is first clamped to a −50% to +50% range, then mapped onto that scale). The four are blended into one 0–100 composite using the weights below. It is a weighted blend, not a pass/fail sequence: a strong pillar can partly offset a weak one, which is why the app shows each pillar on its own.
Circle of Competence
25%Is the business simple and understandable?
A business you can explain is a business you can judge. Market Lens approximates this with a sector and industry lookup: how predictable that type of business is (beverages and railroads score high; biotech and semiconductors score low). It rates the kind of business, not your personal expertise.
Moat
30%Does it have a durable competitive advantage?
Built from net profit margin, return on equity (ROE), gross margin, and revenue growth, plus a few points for company size (market cap). ROIC is reported separately and is not an input.
Financial Strength (Fortress)
25%Is it financially strong?
Debt-to-equity, current ratio, positive free cash flow and operating cash flow, and a positive profit margin — can the company survive a bad year without being forced into a corner?
Margin of Safety
20%Is it priced below its estimated value?
(Intrinsic estimate − price) ÷ intrinsic estimate. The estimate averages the Graham Number with a growth-adjusted fair-P/E value; for the four excluded sectors it is the fair-P/E value alone. The DCF and P/B are not inputs.
The result: a checklist label, not a recommendation
The score produces one of three labels: Meets criteria, Watch, or Fails criteria. “Meets criteria” needs a high composite score plus a positive margin of safety and solid moat and financial-strength sub-scores. The label says how a stock measures up against a rules-based checklist. It does not tell you to buy or sell anything.
Formulas worth seeing
Return on invested capital (ROIC)
How much profit the business earns on the money put to work in it. This is a simplified ROIC: the textbook version divides NOPAT (EBIT × (1 − tax rate)) by invested capital. Cash is left in the denominator on purpose — subtracting it inflates ROIC for cash-rich companies, so this is the more conservative figure. (Shown as a quality metric; the moat score itself is built from margins, ROE, revenue growth, and size.)
ROIC = Net Income / (Total Equity + Total Debt)Intrinsic value (used in the score)
The intrinsic-value figure in the analyzer — the one behind the margin-of-safety pillar — averages two estimates. The growth-adjusted fair P/E draws on the “PEG ≈ 1” rule of thumb popularized by Peter Lynch (the idea that a fair P/E is roughly in line with the earnings growth rate). The specific implementation here is Market Lens’s own heuristic: a fair P/E set roughly equal to the expected growth rate, capped between 8× and 20× (12× when growth is unknown). For Technology, Communication Services, Healthcare, and Consumer Cyclical companies the Graham Number is dropped and the fair-P/E value is used alone. The DCF is not part of this number. The caps, the 12× default, the sector exclusions, and the scoring weights are Market Lens’s own choices — not an approach endorsed by Peter Lynch or Warren Buffett.
Intrinsic estimate = average(Graham Number, EPS × fair P/E)
Margin of safety = (Intrinsic estimate − Price) ÷ Intrinsic estimateGraham Number
Benjamin Graham’s ceiling: the most a defensive investor should pay, based on at most 15× earnings and 1.5× book value. It is a price ceiling, never a floor, and it is skipped when earnings per share or book value per share is zero or negative.
Graham Number = √(22.5 × EPS × Book value per share)Discounted cash flow (DCF)
Free cash flow per share is projected for 10 years — 5 years of near-term growth, then a 5-year fade to a slower rate — plus a Gordon-growth terminal value for everything after. The discount rate is the stock’s CAPM cost of equity (risk-free rate + beta × equity risk premium, then clamped to a sensible range), not a full WACC. Bear, base, and bull cases are weighted 25% / 50% / 25% into one value. The scenario assumptions are fixed by the model; you can’t enter your own inputs.
Fair value = Σ [ cash flowₙ ÷ (1 + r)ⁿ ] + [ terminal value ÷ (1 + r)ᴺ ]The terminal value is itself a future amount, so it is discounted back to today (÷ (1 + r)ᴺ) just like every other year’s cash flow. DCF is shown as its own fair-value panel — it is not one of the four scored criteria above.
The DCF inputs are mostly fixed defaults, not calibrated predictions
Most of what drives this model is a set of standard default assumptions baked in — not values tuned to forecast a specific stock:
- • Risk-free rate: 4.3% (fixed default).
- • Equity risk premium: 5% (fixed default).
- • Discount rate: CAPM cost of equity = risk-free rate + beta × equity risk premium, then clamped to a reasonable range.
- • Projection: 10 years — 5 years of growth, then a 5-year fade to a slower rate.
- • Terminal value: Gordon Growth Model, with terminal growth capped at roughly 2.5%.
- • Scenario weights: bear / base / bull = 25% / 50% / 25% (fixed default).
Treat these as adjustable assumptions, not settled facts: a DCF is an estimate of value under a chosen set of assumptions, not a forecast of where the price will go.
When the Graham Number is not used
The Graham Number is a classic value yardstick, but it only makes sense for asset-heavy, defensive businesses. Market Lens deliberately excludes it for Technology, Communication Services, Healthcare, and Consumer Cyclical names — applying it to an asset-light software company would give a misleadingly low price ceiling. Utilities are not on the exclusion list, so the Graham Number is applied to them. Being explicit about where a tool breaks down is part of the methodology.
What this is — and isn't
Every number here is an estimate built on assumptions and public data, which can be delayed or incomplete. A high score or a “Meets criteria” label is not a recommendation, and a fair-value estimate is not a price prediction. Market Lens is educational research that shows its work so you can make your own informed decision.