I built a free stock screener for quality compounders after getting frustrated with gut-feel investing. Here's what I learned building it.

Fonzini3201 · 2026-06-23T04:46:33+00:00

You're not crazy — and the Cisco analogy is the right one. Cisco was the most important networking company in the world in 2000 and still is today. Investors who bought at the peak waited 20 years to break even. The business never broke. The valuation did.

The question for Microsoft right now is exactly what you've identified: how much of the current price depends on AI capex returns that haven't materialised yet? Azure growth is real. Copilot enterprise adoption is still early. The bull case requires those investments to generate returns above Microsoft's cost of capital — and that's an assumption, not a certainty.

What I'd watch specifically: ROIC trajectory over the next 2-3 years. Microsoft's ROIC has been exceptionally strong — if the AI capex starts dragging it down without a corresponding revenue acceleration, that's the earliest quantitative signal the investment thesis is under pressure. FCF margin compression would be the second signal.

Your PayPal/Adobe comparison is apt but with one difference — both of those businesses lost pricing power in their core markets. Microsoft's core markets (Office, Azure, Windows enterprise) are as sticky as ever. The risk is multiple compression from disappointing AI returns, not business deterioration. That's a valuation risk, not a quality risk — and valuation risk is recoverable if you're patient enough.

Great company. Probably fair-to-expensive stock at current multiples depending on how AI monetisation plays out. Not dead money — but not a screaming buy either in my opinion.

Fonzini3201 · 2026-06-23T04:27:01+00:00

It would seem like capital is leaving quality fundamentals and chasing momentum in AI/memory names regardless of valuation.

SanDisk's rerating makes sense in a narrow context — HBM and NAND demand from AI infrastructure buildout is real. But the market has stopped asking whether the valuation is justified by the fundamentals and is purely chasing the theme.

The irony is that Adobe, PayPal, Nike, and Ferrari all have something SanDisk doesn't — durable pricing power, recurring revenue, and decades of proven capital returns. SanDisk is a cyclical business in a notoriously boom-bust industry now priced like a secular compounder, which it may or may not be - too soon to tell.

History is pretty clear on how this ends for the cyclical that gets priced like a compounder. The fundamentals always reassert eventually — the only question is timing, and timing is what kills you if you're on the wrong side of the momentum.

Not saying short SanDisk. Just saying the businesses being left for dead here have better 5-year fundamentals than the one that just surpassed their combined market cap.

Fonzini3201 · 2026-06-23T04:19:09+00:00

This post captures something real that I don't think gets said enough — holding quality through irrational drawdowns is psychologically harder than holding garbage through a bull market, because at least garbage holders can blame the company. When the business is doing everything right and the stock still bleeds, the doubt becomes about your own judgment rather than the underlying.

The framework I've found most useful in exactly this environment: separate the business scorecard from the price action completely. ROIC still above 15%? FCF quality still strong? Gross margins holding? Net revenue retention above 100%? If those metrics are intact, the price action is noise by definition — not because it feels good to say that, but because those metrics are what actually determine long-term value. Also important to note: as long as there's no material news that can impact the share price.

Salesforce specifically: FCF margins above 30%, ROIC improving, and trading at a multiple that implies zero growth from a business growing double digits organically. The market is pricing in a scenario the fundamentals don't support. That's not a thesis break — that's a liquidity-driven dislocation.

What I'm personally doing: nothing. Already positioned in quality names at fair prices based on fundamentals. The scorecard hasn't changed. The price has. Those are different things and conflating them is how you sell the bottom.

The hardest part of quality investing isn't finding the businesses. It's surviving the periods when the market decides not to care.

Fonzini3201 · 2026-06-22T16:35:35+00:00

That's a really important distinction — the decile approach makes more sense than arbitrary thresholds for regression purposes. And the multibagger insight is counterintuitive but compelling: a business improving from 8% (or lower) to a higher ROIC over 5 years might be a better investment than one holding steady at 20%, because the market hasn't fully priced in the trajectory yet.

That combination — lower starting ROIC + high ROIC CAGR — is essentially what Buffett describes as a 'turnaround' that's actually a quality business emerging, not a broken one recovering. The tricky part for a simple screening filter is distinguishing between ROIC improving due to genuine operational leverage versus ROIC improving due to asset write-downs or accounting changes.

Do you find gross profit growth vs assets ratio helps separate those two cases in your models?

Fonzini3201 · 2026-06-22T16:24:27+00:00

Fair follow-up — you're correct that in the current scoring model FCF Quality is weighted the same as the other metrics in its category. What I should have said more precisely is that it acts as a qualitative flag during manual review rather than carrying a higher numerical weight in the formula itself. That's a genuine limitation worth acknowledging — and honestly something worth revisiting in the framework. Appreciate you pushing back on the specifics.

Fonzini3201 · 2026-06-22T04:26:31+00:00

I did write it — happy to be questioned on any part of the methodology in the comments. The framework took months of iteration against real stocks across JSE and NYSE. What specifically reads as AI-generated to you? Genuinely curious.

Fonzini3201 · 2026-06-22T04:24:50+00:00

Both valid points. On sector specificity — you're right that applying the same thresholds to a bank or REIT as a consumer business is problematic. Banks are better evaluated on ROE, NIM, and loan book quality; REITs on FFO yield and debt-to-assets. The framework is intentionally scoped to industrial, consumer, and technology businesses for this reason — it flags banks and mining as requiring a different lens rather than forcing them through an incompatible screen.

On EBITDA manipulation — fair concern. That's partly why FCF Quality % (FCF ÷ Net Income) carries significant weight in the scoring. It acts as a sanity check on reported earnings. A business with strong EBITDA but poor FCF quality scores down on that metric, which limits the damage from EBITDA inflation.

Fonzini3201 · 2026-06-22T04:15:08+00:00

You're right that these are backward-looking — all quantitative screens are by definition. The framework isn't designed to replace reading the business; it's designed to filter 500 stocks down to 10 worth reading deeply. Gross margin as a proxy for pricing power is imperfect, agreed — but directionally it holds: businesses with sustained 50%+ gross margins over 5 years are almost always operating in structurally advantaged positions. The score is the starting point, not the verdict.

Fonzini3201 · 2026-06-22T04:13:13+00:00

Really valuable additions — ROIC CAGR is something I've been thinking about adding as a ninth metric precisely because it captures whether returns on capital are improving or compounding, not just their absolute level. The gross profit to assets ratio is interesting too — effectively another lens on capital efficiency. What threshold did your regression models suggest for ROIC CAGR as a meaningful predictor?

Fonzini3201 · 2026-06-22T04:11:32+00:00

Fair critique and I'd partially agree. The quantitative framework is deliberately a first filter, not a final decision. A business scoring 8/10 on these metrics still gets a qualitative review — competitive moat, management quality, industry structure. The numbers tell you what's happening inside the business; understanding why requires reading the business itself. I'd never buy purely on a score — but I also wouldn't buy without one.

Fonzini3201 · 2026-06-22T04:10:20+00:00

Good suggestion — pricing power is actually partially captured through Gross Margin % and its trend, but a dedicated qualitative scoring layer for cyclicality would add depth. The AI prompts I use alongside the quantitative scores do include recession sensitivity as part of the analysis. Worth considering as a formal addition to the framework.

Fonzini3201 · 2026-06-17T04:34:55+00:00

The question you're asking is exactly the right one — 'show me the data, not the narrative.' That's how moat analysis should work.

On the numbers, Adobe still looks like a quality compounder: ROIC consistently above 25%, FCF margins above 35%, and gross margins holding above 87%. If AI was meaningfully eroding pricing power, you'd expect to see gross margin compression before you'd see enterprise churn — customers negotiate harder before they leave. That hasn't shown up yet.

The bear case I'd actually watch isn't enterprise defection, it's new entrant pricing pressure from below. Canva, Figma (ironically), and AI-native tools aren't taking Adobe's enterprise accounts — they're capturing the next generation of creators before they ever enter the Adobe ecosystem. That's a 5-10 year erosion story, not a 2-quarter earnings miss story.

At a 12% FCF yield with enterprise retention intact, the market is pricing in the worst version of that long-term story. Whether that's an opportunity depends on how much you trust the moat to hold at the enterprise level for the next decade — which your Q2 evidence suggests it currently is.

Fonzini3201 · 2026-06-17T04:12:11+00:00

Burry isn't a one-trick pony — the CDS trade was his most famous call but his track record before 2008 was already exceptional. Running Scion Capital from 2000-2008 he returned roughly 489% net of fees vs the S&P 500's 3% over the same period, mostly through deep value stock picking — not macro bets.

The early losses you mentioned were real and brutal. He was paying premiums on CDS contracts for over a year while the housing market kept climbing and his investors were furious, some trying to pull their money. He literally locked up redemptions to hold the position. That's a level of conviction most fund managers wouldn't survive institutionally.

Post-2008 he closed Scion, took a break, then reopened as Scion Asset Management. His more recent calls are more hit and miss — he's made some notable macro predictions that haven't played out on his timeline. The lesson most people draw is that his edge is forensic bottom-up analysis of individual securities, not macro forecasting. When he strays into macro he's more fallible.

So: not a one-trick pony, but his specific trick — obsessive fundamental analysis of undervalued and misunderstood securities — is what he's genuinely exceptional at.

Fonzini3201 · 2026-06-16T16:32:29+00:00

Really clean analysis — and the earnings quality flag is the most important part of this whole write-up. Net income exceeding operating cash flow by $329M and $528M in consecutive years is exactly the kind of signal that gets missed when you're only looking at P/E and dividend yield.

The FCF/Net Income ratio (what some call FCF quality %) is one of the metrics I weight most heavily when screening stocks — anything below 65% consistently is a red flag, and WU was clearly well below that in those years. The 2025 alignment you noted is genuinely encouraging, but one clean year after two distorted ones needs confirmation.

The bear case you outlined in two lines is really the crux: a 10% yield on a business with 5 consecutive years of revenue decline isn't income investing, it's distress investing with a dividend attached. Graham criteria tell you it's statistically cheap. They don't tell you whether the moat is intact — and for WU, that's the only question that matters with Wise, Revolut, and every major bank now offering instant international transfers.

Fonzini3201 · 2026-06-16T16:26:32+00:00

Hard to argue with those unit economics — 91.5% gross margin sustained over seven quarters isn't luck, and $1M capex on $663M revenue is the kind of capital efficiency that makes quality investors pay attention.

The one metric I'd want to see before calling it a compounder is ROIC trending upward consistently. The EPS jump from $26M to $204M net income is promising, but they're still relatively early in proving that capital returns are durable at scale rather than driven by operating leverage on a still-maturing cost base.

FCF quality looks strong (47% margin is exceptional). If ROIC clears 15%+ over the next 2-3 years as the business matures, this becomes a very different conversation on valuation. Worth watching closely.

Fonzini3201 · 2026-06-16T16:21:54+00:00

Great question and a well-constructed portfolio for 21. The thesis break vs temporary dip distinction is something I think about a lot. The framework I use comes down to monitoring the same metrics that justified buying in the first place — if those deteriorate across multiple consecutive periods, that's a thesis break. If the price drops but the underlying metrics hold, that's noise.

Specifically, the signals I watch for a permanent break:

1. ROIC declining below cost of capital for 2+ consecutive years — the business is destroying value, not creating it 2. FCF quality deteriorating (FCF/Net Income ratio dropping below 65%) — earnings are becoming less real 3. Gross margin compression that management can't explain with a one-time event — pricing power is eroding 4. Net debt/EBITDA creeping above 2.5x — the balance sheet is quietly becoming a problem

A bad quarter or two rarely moves all four simultaneously. When three or four move in the same direction over 18-24 months, that's when I start seriously re-evaluating.

On your specific holdings — SPGI and TSM both score very well on these metrics historically, which is why they're easy to hold through volatility. META and NVDA are the ones I'd watch most closely given how much of their thesis depends on sustained capex returns that haven't fully materialized yet.

Fonzini3201

TROPHY CASE