Zenly
Methodology

How the Zen Score works

A plain explanation of what the Zen Score measures, what goes into it, and what it deliberately ignores.

The quality factor premium

The Zen Score is built around the quality factor premium: the well-documented historical observation that companies of high quality tend to beat the market over time. This is a well documented phenomenon and has been widely studied in financial academia and market history, and it is the foundation the score rests on.

Quality alone isn't enough

Beyond requiring high quality, a high Zen Score also requires the company to be reasonably valued - both in relation to its current earnings and in relation to its long-term expected growth. A great business bought at too high a price is not a great investment, so valuation is a hard requirement, not an afterthought.

What goes into the score

The exact formula of the Zen Score is not public, however, it consists of a combination of fundamental metrics, valuations and forecasts: revenue growth, return on invested capital, debt, price multiples, long-term growth forecasts.

The forecasts reflect how domain experts see the growth trajectory of the business. Unlike analyst price targets - which change on a whim based on the stock price - long-term growth forecasts have historically tended to be a good approximation of where a company's earnings are actually headed.

When a Zen Score isn't available

A Zen Score requires two baseline conditions to be met: the company must be profitable, and it must have a long-term growth forecast available. If either of these is missing, there isn't enough to work with to produce a reliable score, so no Zen Score is shown for that company.

What it deliberately ignores

The Zen Score does not care about momentum or hype. It is based on numbers and expert forecasts. The goal is to remove the noise from investing and let you objectively approximate, with good accuracy, how desirable an investment is using one single score.

What it doesn't promise

A company with a good Zen Score will not always beat the market. But on aggregate, given enough time, history has shown that companies with the good fundamental numbers the Zen Score captures do indeed beat the market. It is a research tool for tilting the odds in your favor - not a prediction.

Glossary