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 finding, replicated across decades of academic research (Novy-Marx, 2013; Asness et al., 2019), that high-quality companies have historically delivered better risk-adjusted returns than the market. Profitability is one of the most durable effects in asset pricing - durable enough that it sits inside the standard academic factor models - 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 exact methodology can vary slightly by sector.
The forecasts reflect how the analysts covering a business see its growth trajectory. Unlike price targets - which tend to follow the stock price rather than lead it - growth estimates at least describe the business itself. They are still estimates, and they skew optimistic on average, so the score treats them as one input among several rather than as fact.
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 fundamentals 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
- 0 – 30Low quality or expensive stock
- 30 – 70Average investment
- 70 – 80Investment grade
- 80 – 90Great investment
- 90+Zen worthy