Compounder

Methodology · comparison

Compounder Score vs F-Score vs Z-Score

Three quality signals side by side. Each was built for a different question — using the wrong one is how investors get burned by “great score, terrible decision.”

TL;DR

  • Compounder Score answers “is this a quality compounder at a fair price?” — the value-investor question.
  • Piotroski F-Score answers “are this firm's fundamentals getting better year-over-year?” — useful as a confirmation signal on cheap stocks.
  • Altman Z-Score answers “how likely is this firm to go bankrupt in the next 2 years?” — credit risk, not quality.

Side-by-side

 Compounder Score
What it scoresQuality + value composite
Range0–100
Components5 (each 0–20): profitability, capital structure, cash quality, valuation, stability
Year published2026 (Sakamoto Labs)
Built forModern retail self-directed value investors
Includes valuation?Yes (earnings yield, 0–20 leg)
Includes consistency?Yes (multi-year ROE coefficient of variation)
Sector adjustmentsSame thresholds across sectors (v1)
TransparencyFull formula published; every component shows rationale per stock
Best signal for"Is this a high-quality compounder at a fair price?"
Common gotchaDoesn't include growth — slow-grower can outscore hyper-grower

F-Score and Z-Score columns hidden on mobile for readability — view on a wider screen for the full table.

When to use Compounder Score

Use the Compounder Score when the question is “should I own this for the long run?” It's the only one of the three that prices in valuation alongside quality — a great business at a stupid price is not a great investment, and the score reflects that. It's also the only one that explicitly rewards multi-year consistency rather than a single point-in-time snapshot.

Tradeoff: it deliberately excludes growth and momentum. A high-quality slow-grower will outscore a low-quality hyper-grower — which matches value-investing logic but penalizes high-growth tech.

When to use the F-Score

The F-Score is best as a confirmation filter on already-cheap stocks. Piotroski's original paper used it to separate the cheap-and-improving from the cheap-and-deteriorating in the bottom P/B quintile. It doesn't answer “is this a great business?” — only “are this quarter's fundamentals better than last year's on 9 boolean tests?”

Tradeoff: binary tests are noisy. Going from 5% gross margin to 5.1% counts the same as going to 25%. The score is best paired with a quality screen on top.

When to use the Z-Score

The Z-Score is a bankruptcy filter, not a quality score. Altman's 1968 calibration was on manufacturing firms; it's a hard exclude — “don't own this if Z < 1.81” — rather than a positive signal. Asset-light, IP-heavy firms (modern tech, pharma) will score weirdly because the ratios were tuned for industrial balance sheets.

Tradeoff: low Z-Score correlates with going-concern risk, but a high Z-Score doesn't tell you anything about whether the business is worth owning.

Why we built another score

The F-Score (2000) and Z-Score (1968) are foundational and still useful — but neither answers the value investor's actual question: is this a quality compounder I'd be happy to own for ten years at this price? That requires combining quality (profitability, capital structure, cash, consistency) with price (valuation), which neither prior score does. Compounder Score is the simplest 0–100 composite we could build that answers that question end-to-end — with a fully published formula on our methodology page and per-component rationale on every stock.

Read the full methodology →What every legend owns →

Educational use only. Quality scores are signals, not recommendations.