Quality stock
Definition · Level 9 · Valuation
Keep reading with Tradecraft
You’ve read your 3 free definitions this month. Tradecraft explains all 738 terms and strategies, with the lessons that teach them, flashcards that come back before you forget, quizzes and a payoff lab.
A company with high, stable returns on capital, low leverage and consistent earnings; investors pay up for its durability rather than for cheapness or fast growth.
Example
“25% ROIC every year and net cash — it deserves a premium multiple.”
Where Tradecraft teaches it
Level 9 · Valuation, in the lesson “Investing styles and sell-side vocabulary”: Growth vs value, quality, moats, cyclicals vs defensives, ratings, targets and re-ratings.
Related terms
- Cyclical vs defensiveSectors whose earnings swing with the economy (autos, airlines, semis, materials) versus those with steady demand through recessions (staples…
- Growth vs valueInvesting styles: paying high multiples for fast growers whose worth lies in far-future cash flows, versus buying low-P/E, low-P/B or high-yield…
- InitiationAn analyst’s (or bank’s) first published rating and target on a stock, typically with a long in-depth report.
- MoatA durable competitive advantage — brand, network effects, switching costs, scale or patents — that keeps returns on capital high for years despite…
- Multiple expansion / compressionThe market paying more or less per dollar of earnings (P/E up or down), independent of earnings growth; also called a re-rating or de-rating.
- Overweight / outperformBuy-equivalent sell-side ratings: the analyst expects the stock to beat its sector or the market.