Should we be worried about London Stock Exchange's Quality Rank (LON:LSE)?

Good quality companies can offer a lot of comfort to investors. They tend to be strong, stable, profitable firms that deliver predictable returns, have pricing power and can reinvest earnings at high rates. Firms at the other end of the spectrum, however, can be easily become a rough ride.

Stockopedia's Quality Rank offers a quick way to assess the types of profitability characteristics that make a company 'high quality', such as return on capital employed, because it is a composite score. It bundles up a lot of related information and translates it into one number that is easily comparable across stocks and markets.

London Stock Exchange (LON:LSE)'s Quality Rank raises more questions than answers.

What Stockopedia’s Quality Rank says about London Stock Exchange

London Stock Exchange has a Quality Rank of 39. While it is not a 'junk' stock, it is still lower quality than a lot of other investment candidates out there. These kinds of companies are perhaps more likely to encounter financial troubles or market share erosion in the years ahead. 

This fate is not guaranteed, but it does suggest that more research is required in order to see if it has strengths in other areas. One way to do this would be to look at London Stock Exchange's Value and Momentum Ranks on its StockReport.

What does this mean for potential investors?

Some of the best quality stocks in the market have defensible models that can deliver high levels of shareholder returns over the long term. But there are no guarantees and it's important to do your own research. Indeed, we've identified some areas of concern with London Stock Exchange that you can find out about here.