Clusters & Dimensions
Business Model
How a company makes money — recurring vs transactional revenue, pricing power, and how capital-intensive the business is.
The Business Model cluster captures the structural characteristics of how a company generates revenue and what that means for its resilience during different economic conditions.
Revenue Predictability
How forecastable is next quarter's revenue? Subscription and SaaS businesses, utilities, and contracted-services companies score high because their revenue is locked in months in advance. Project-based businesses, spot-priced commodities, and advertising-driven models score low because revenue can disappear quickly.
This dimension is proxied by the historical volatility of quarterly revenue: lower standard deviation means higher predictability.
Higher score = better. Predictable revenue companies hold up better during uncertainty.
Revenue Cyclicality
How closely does revenue track the economic cycle? Industrials, materials, and construction companies see revenue rise and fall sharply with GDP. Healthcare, utilities, and consumer staples are largely insulated. This dimension is proxied by sector membership.
Higher score = worse. High cyclicality means the business amplifies economic swings.
Structural Pricing Power
Can the company maintain high margins because of a durable competitive advantage — a near-monopoly position, a regulated market, or a brand moat that customers won't walk away from? This is measured by the absolute level of gross margin relative to sector peers. A company with a structurally high gross margin has more cushion to absorb cost increases without losing customers.
Higher score = better.
Cyclical Pricing Power
Separate from structural pricing power, this dimension asks: can the company raise prices during inflationary periods without losing volume? It is proxied by the stability of gross margins over time (lower standard deviation across trailing quarters). A company whose gross margin stays flat even as input costs rise is demonstrating real pricing power.
Higher score = better.
Capex Intensity
Capital expenditure as a percentage of revenue. High-capex businesses (telecom, utilities, semiconductors, airlines) must continuously reinvest large sums just to maintain their competitive position. This creates sensitivity to financing costs and can limit free cash flow generation even when earnings look healthy.
Higher score = worse when capital is expensive or the economic outlook is uncertain.