5 Ways To Identify Economic Moats

Published On: 05-Jul-2017

At Morningstar, the concept of economic moats is a cornerstone of our stock-investment philosophy.

5 Ways To Identify Economic Moats

A company with a very profitable business is like a castle that is constantly under attack by competitors. Without a strong defense, competitors will soon imitate the company’s products, charge lower prices, steal market share, and erode profit margins to the point where the business is merely average, at best.Economic moats are what keep competitors at bay. An economic moat is a sustainable competitive advantage that allows a company to earn excess returns on capital for a long period of time.Morningstar analysts assign every company in our coverage universe an economic moat rating: either wide, narrow, or none. Here are the 5 sources of economic moats.

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01

The network effect

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02

Intangible assets

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03

Efficient scale

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04

Low-cost producer

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05

High customer-switching costs

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