Investors usually look at a company's ROE, profit margins or other metrics and decide if it's "good" or "bad" based on some threshold. For example, we recently [posted](https://www.reddit.com/r/ValueInvesting/comments/1qbw34m/datadriven_framework_top_10_highest_quality_sp/?utm_source=share&utm_medium=web3x&utm_name=web3xcss&utm_term=1&utm_content=share_button) about top 10 S&P 500 companies using this threshold based approach. But here's the thing: a 15% ROE might be exceptional for a utility company but mediocre for a software stock. Context matters.
So we have created a complementary algorithm to compare companies to their sector and industry peers. In this approach, we calculate percentile rankings for each company across 40 financial metrics using current TTM data: returns, margins, cash flow quality, growth, operational efficiency, leverage, liquidity, valuation, and dividends. Each company gets scored 1-5 based on where they rank versus their sector peers. Top 20% of the sector gets a 5. Bottom 20% gets a 1. These scores get weighted and averaged into a single overall score out of 5.
Here's who came out on top in each sector when we ranked every S&P 500 company against its sector peers:
|Sector|Company|Symbol|Score (/5.0)|Peers|
|:-|:-|:-|:-|:-|
|Basic Materials|CF Industries|CF|4.47|19|
|Healthcare|Incyte|INCY|4.40|59|
|Consumer Cyclical|Deckers Outdoor|DECK|4.28|53|
|Technology|Adobe|ADBE|4.26|84|
|Energy|APA Corporation|APA|4.11|23|
|Utilities|Edison International|EIX|4.04|31|
|Financial Services|Mastercard|MA|3.99|68|
|Consumer Defensive|Monster Beverage|MNST|3.92|36|
|Communication|Netflix|NFLX|3.86|17|
|Real Estate|Equity Residential|EQR|3.77|30|
|Industrials|Paychex|PAYX|3.77|72|
Curious which of these you actually own and whether you think sector leadership matters for your investment strategy.
Intersting to see that Adobe edged out Microsoft, Apple, and NVIDIA as the top-ranked Technology stock on a peer-relative basis. ADBE is down significantly from its highs and has been hammered recently (even down 2% today), yet the fundamentals still show it executing better than its tech peers across 40 metrics on the average.
This peer-relative view complements [the absolute quality analysis from earlier this week](https://www.reddit.com/r/ValueInvesting/comments/1qbw34m/datadriven_framework_top_10_highest_quality_sp/?utm_source=share&utm_medium=web3x&utm_name=web3xcss&utm_term=1&utm_content=share_button). Looking at both together is where it gets interesting - you might find a company that's #1 in its sector but only average on absolute metrics, or a company with strong fundamentals that's losing ground to competitors.
*This is educational content, not investment advice*.