I got tired of screening stocks by just pe ratio and getting a list of value traps so I started looking into what metrics actually have predictive power.
Turns out there's decent academic research on this. High roic combined with low reinvestment needs tends to compound wealth over time. Makes sense because youre buying businesses that generate excess returns and dont need to plow everything back in just to maintain competitive position.
Debt coverage matters more than absolute debt levels. A company with moderate debt but strong interest coverage is safer than a company with low debt but weak cash generation.
Gross margin stability over 5 to 10 years is a better moat indicator than any single year snapshot. If margins are consistent through different economic cycles, theres probably something protecting the business.
Payout ratios below 60% for dividend stocks. Once you get above that youre betting on earnings growth just to maintain the dividend which adds risk.
Free cash flow yield matters more than earnings yield because earnings can be manipulated way easier than actual cash coming in.
None of this is revolutionary but combining these filters actually produces a pretty different list than just sorting by pe. Way fewer names but higher quality.