What's the future for Computershare's (ASX:CPU) share price?

Given the present disruption and volatility in the stock market, it is more important than ever to identify high quality stocks for your portfolio. By this, I mean safe, profitable companies with strong balance sheets.

These sorts of stocks are different because they've got what billionaire investor Warren Buffett calls economic moats. These moats can be divided into different types:

• Intangible Assets - Such as brands that customers love, valuable patents or regulatory approvals
• Switching Costs - It might be too costly, complicated or unnecessary for customers to look elsewhere
• Network Effects - When customers become part of a product it creates tremendously powerful businesses
• Cost Advantages - Superior processes and unique locations and assets make it hard for others to compete
• Great Scale - Large infrastructure and distribution networks are powerful barriers to entry in many industries

Computershare (ASX:CPU) is a large cap Software & IT Services stock. I'd like to discover if it has any moat-like characteristics.

Has Computershare ASX:CPU) got a moat?

Some of the biggest indicators of a moat involve persistent strong margins and high levels of cash generation – cash being especially important given it is unclear how the rest of 2020 will pan out. Here are a few ways of gauging these characteristics - and how Computershare compares:

1. High rates of Free Cash Flow - the measure of a thriving company.
   - A high ratio of free cash flow to sales can be a very positive sign. For Computershare, the figure is an impressive 9.24%. 
2. High Return on Capital Employed - the measure of a company growing efficiently and profitably.
   - A 5-year average ROCE of more than 12 percent is a pointer to strong efficiency. For Computershare, the figure is an eye-catching 12.3%.
3. High Return on Equity (compared to peers) - the measure of a company making good profits from its assets.
   - Computershare has a 5-year average ROE of 19.8%.
4. High Operating Margins (compared to peers) - the measure of a company with pricing power
   - Computershare has a 5-year average operating margin of 18.6%.

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 Computershare that you can find out about here.