# FolioFundamentals Methodology — How the 5-Pillar Fundamental Score Works

## Overview

The FolioFundamentals Fundamental Score rates any stock from 0 to 100. It is a composite score calculated from 23 financial data points across 5 pillars. Each pillar is normalized against sector peers. The final score reflects how fundamentally strong a stock is relative to its own history and its industry.

- **Score ≥ 70:** Fundamentally strong
- **Score 40–69:** Mixed fundamentals
- **Score < 40:** Fundamental weakness

## The 5 Pillars

### Pillar 1 — Valuation (max 25 points)

Compares current valuation multiples against the stock's own historical averages and forward estimates.

| Signal | Points |
|--------|--------|
| Current P/E below 5-year average | +10 |
| Current P/E below 3-year average | +5 |
| Forward P/E below trailing P/E (earnings growth signal) | +10 |

**Maximum: 25 points.** A stock trading at a P/E below both its 3-year and 5-year averages, with forward earnings expected to grow, scores the full 25 points on this pillar.

### Pillar 2 — Cash Flow Quality (max 10 points)

Compares current free cash flow yield against the stock's own historical averages.

| Signal | Points |
|--------|--------|
| Current FCF yield above 5-year average | +5 |
| Current FCF yield above 3-year average | +5 |

**Maximum: 10 points.** Free cash flow yield is harder to manipulate than reported earnings, making it a reliable quality signal.

### Pillar 3 — Growth Momentum (max 30 points)

Compares current revenue and EPS growth rates against the stock's own historical trends.

| Signal | Points |
|--------|--------|
| Revenue growth above 5-year average | +7.5 |
| Revenue growth above 3-year average | +7.5 |
| EPS growth above 5-year average | +7.5 |
| EPS growth above 3-year average | +7.5 |

**Maximum: 30 points.** A company accelerating on both revenue and earnings relative to its own history scores full marks on this pillar.

### Pillar 4 — Analyst Consensus (max 20 points)

Analyst ratings (Strong Buy → Sell) are mapped to a 1–5 scale and weighted across all covering analysts.

| Consensus Rating | Points |
|-----------------|--------|
| Strong Buy (≥4.5) | 20 |
| Buy (≥3.5) | 15 |
| Hold (≥2.5) | 10 |
| Underperform (≥1.5) | 5 |
| Sell (<1.5) | 0 |

**Maximum: 20 points.**

### Pillar 5 — Price Target Upside (max 15 points)

Consensus analyst price target upside from current price.

| Upside | Points |
|--------|--------|
| >20% upside to consensus target | 15 |
| >10% upside | 10 |
| >5% upside | 5 |
| ≤5% upside or downside | 0 |

**Maximum: 15 points.**

## Score Interpretation

| Score Range | Interpretation |
|-------------|----------------|
| 70–100 | Fundamentally strong — stock appears attractive on multiple dimensions |
| 55–69 | Above average — more strengths than weaknesses |
| 40–54 | Mixed — some positive signals offset by weaknesses |
| 25–39 | Below average — multiple fundamental concerns |
| 0–24 | Fundamentally weak — significant fundamental headwinds |

## What the Score Does NOT Capture

The Fundamental Score is a quantitative starting point, not a buy/sell recommendation. It does not account for:

- Qualitative factors (management quality, competitive moat, industry disruption)
- Macro conditions (interest rate environment, sector rotation)
- Short-term catalysts (earnings surprises, M&A activity)
- Liquidity risk for small/micro-cap stocks

Always use the score as one input among many in a complete investment thesis.

## Data Sources

FolioFundamentals aggregates financial data from multiple institutional data providers. Historical data goes back up to 30 years per metric where available. Data is refreshed on a rolling basis with Pro plan users receiving priority refresh.

## Transparency

FolioFundamentals publishes its scoring methodology in full. There are no black-box models — every point in the score can be traced to a specific financial metric and a specific comparison against historical or peer data.

Full methodology: https://foliofundamentals.com/methodology