Predictive Power & Visibility
Basic economic theory shows that in a highly competitive market, returns will be driven down to essentially no economic profit as rivals will imitate any advantage. To achieve a durable advantage, companies must essentially defy this very powerful force of competition.
For investors, the key is to see changes in competitive strength before others. The W Ratings system provides investors with unprecedented visibility into this capability.
Our foundation is built on five key principles:
1. Competitive strength is the ability of a company to allocate capital (seen in their Competitive Life Cycle) to attract, keep and hold customers captive better than its rivals (seen in their Moat Barriers).
2. Competitive strength determines the long- and short-term ability of a company to grow revenues and earnings.
3. Competitive strength is highly dynamic and complex, yet consists of key foundations (CLC and Moat Barriers) that can be tracked over time.
4. Changes in competitive strength are visible at the customer level (Moat Barriers) that remain unrecognized or not fully discounted by most investors.
5. Investors can exploit these insights to improve their valuation models and anticipate revisions in earnings.
NOTE: The concept of CAP was formalized by Miller & Modigliani in 1961. The competitive life cycle is a generic concept proven useful by several Wall Street firms, including CSFB HOLT (CFROI) and Collins Stewart (CFROC).