Why Double Standard Inc (TYO:3925) will appeal to moat investors

Why Double Standard Inc (TYO:3925) will appeal to moat investors

Article image

There's an exclusive group of companies in the stock market that stand out because they've got what billionaire investor Warren Buffett calls economic moats. Like medieval castles, their profits are fortified by impregnable business models... and there are signs that Double Standard Inc (TYO:3925) might be one of them.

Given the present disruption and volatility in the stock market, it is more important than ever to identify high-quality stocks for your portfolio - and finding companies with moats is one way to do it. 

Moats come in different forms, but they mostly consist of:

  • Intangible Assets - Such as brands that customers love, valuable patents or regulatory approvals
  • High 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

Here's a quick guide to finding the clues to economic moats - using Double Standard Inc (TYO:3925) as an example...

Double Standard Inc (TYO:3925)'s impressive metrics

Some of the biggest indicators of a moat involve persistent strong margins and high levels of cash generation – cash being especially important given the recent shocks to the worldwide economy. Here are a few ways of gauging these characteristics - and how Double Standard Inc 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 Double Standard Inc, the figure is an impressive 19.0%. 
  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 Double Standard Inc, the figure is an eye-catching 40.9%.
  3. High Return on Equity (compared to peers) - the measure of a company making good profits from its assets.
    - Double Standard Inc has a 5-year average ROE of 32.3%.
  4. High Operating Margins (compared to peers) - the measure of a company with pricing power
    - Double Standard Inc has a 5-year average operating margin of 28.3%.

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 Double Standard that you can find out about here.


About us

Stockopedia helps individual investors make confident, profitable choices in the stock market. Our StockRank and factor investing toolbox unlocks institutional-quality insights into thousands of global stocks. Voted “Best Investment Research Tools” and “Best Research Service” at the 2021 UK Investor Magazine awards.

Double Standard's StockRank™

NeutralSpeculative

Double Standard's StockRank™

With a StockRank of 71, Double Standard is more attractive than 71% of the 14,655 stocks we cover in Asia, according to our proprietary ranking system.

See the full StockReport

Absolutely Perfect

"Trialed multiple other platforms - this is by far my favourite. Other platforms do not even have half the stuff that you can find on Stockopedia. Love it!"

As per our Terms of Use, Stockopedia is a financial news & data site, discussion forum and content aggregator. Our site should be used for educational & informational purposes only. We do not provide investment advice, recommendations or views as to whether an investment or strategy is suited to the investment needs of a specific individual. You should make your own decisions and seek independent professional advice before doing so. Remember: Shares can go down as well as up. Past performance is not a guide to future performance & investors may not get back the amount invested.