The Four Pillars: Valuation, Quality, Growth, Health
Every stock on ShareValue.ai is evaluated on four fundamental dimensions. Together, they paint a complete picture of an investment opportunity.
The Four Pillars Overview
| Pillar | Key Question | What We Measure |
|---|---|---|
| Valuation | Is it cheap? | Price relative to earnings, assets, sales |
| Quality | Is it good? | Profitability, efficiency, consistency |
| Growth | Is it growing? | Revenue and earnings trends |
| Health | Is it stable? | Debt levels, cash flow, financial strength |
Buying a House
When buying a house, you'd consider:
- Valuation: Is the price fair for this neighborhood?
- Quality: Is it well-built with good materials?
- Growth: Is the area appreciating in value?
- Health: Is the foundation solid? Any structural issues?
You wouldn't buy a house that's only good on one dimension. Same with stocks—you want strength across all four pillars.
Pillar 1: Valuation Score
What it answers: Am I paying a fair price?
Key metrics:
- P/E Ratio (Price to Earnings)
- P/B Ratio (Price to Book Value)
- P/S Ratio (Price to Sales)
- PEG Ratio (P/E relative to Growth)
High score means: The stock appears undervalued relative to its fundamentals and peers.
Example:
- Stock A: P/E of 10 vs. sector average of 20 → Higher valuation score
- Stock B: P/E of 35 vs. sector average of 20 → Lower valuation score
Pillar 2: Quality Score
What it answers: Is this a good business?
Key metrics:
- Return on Equity (ROE)
- Profit Margins
- Return on Assets (ROA)
- Earnings Consistency
High score means: The company efficiently generates profits and has sustainable competitive advantages.
Example:
- Company with 25% ROE, 20% margins → Higher quality score
- Company with 8% ROE, 5% margins → Lower quality score
Pillar 3: Growth Score
What it answers: Is the company expanding?
Key metrics:
- Revenue Growth Rate
- Earnings Growth Rate
- Growth Consistency
- Forward Growth Estimates
High score means: The company is growing its business at an attractive rate.
Example:
- Company growing revenue 15% annually → Higher growth score
- Company with flat or declining revenue → Lower growth score
Pillar 4: Health Score
What it answers: Is the company financially stable?
Key metrics:
- Debt to Equity Ratio
- Current Ratio (short-term liquidity)
- Interest Coverage
- Free Cash Flow
High score means: The company has a strong balance sheet and can weather economic storms.
Example:
- Company with low debt, strong cash flow → Higher health score
- Company with high debt, negative cash flow → Lower health score
Key Takeaways
- Four pillars provide a complete investment picture
- Valuation = price, Quality = business strength, Growth = expansion, Health = stability
- Look for stocks strong across multiple pillars
- Each score is 0-100, compared within sectors
Why All Four Matter
| If You Only Look At... | You Might Miss... |
|---|---|
| Valuation | A cheap stock that's cheap for good reason (declining business) |
| Quality | A great business that's overpriced |
| Growth | A fast grower burning cash and heading for trouble |
| Health | A stable company going nowhere |
The best investments score well on multiple pillars.
Sector-Adjusted Scoring
Important: We compare stocks within their sectors.
Why? Because different industries have different norms:
- Tech companies typically have higher P/E ratios
- Banks typically have lower margins
- Utilities typically have higher debt
A P/E of 25 might be cheap for software but expensive for a bank. Our scores account for this.
The Sweet Spot
The ideal stock has:
- High Valuation Score (underpriced)
- High Quality Score (great business)
- High Growth Score (expanding)
- High Health Score (stable)
These are rare—but that's what makes them valuable finds!
Next up: How do we combine these pillars into one Final Score?