Valuation
SE Grade (stars)
0–3 stars for how good and durable the business is. The price moves it one notch at most; the rank only lowers it.
Definition
Stars grade the business: Quality (is it good and safe today) and Moat (will it stay good). The price may move the result by at most one notch: a great business at a rich price is 2★, not 1★, and a cheap, weaker business can step up one notch but never into 3★. A business with the top mark in both Quality and Moat is never below 2★, whatever the price. A half star (½☆☆) is in the guide but below one star; a dash is unrated (a weak business, or too little data). 3★ also needs a 5-year return above its cost of capital in the top 5% of the ~31,000 companies ranked, 2★ the top 10%. The rank can lower the stars, never raise them.
Why it matters
Stars are rare on purpose, as in Michelin's guide. They say how good and durable the business is, not what the stock will return: price moves returns, so it is in the score, but only by a notch.
How Standard Equity uses it
Opens from the SE Grade in the chart sidebar, with the workings row by row. The Value row is the price position (the Reference Value upside and the multiple against its own 10-year median); it is shown, and it does not set the stars. Operating companies and REITs: Quality reads ROIC over the cost of capital (the last three years' median with the latest year blended in), cash conversion, debt and interest cover, each on a straight scale rather than in steps, Moat the 10-year return record and the stability of gross and operating margin; REITs price against P/FFO. Banks and capital-markets firms: ROE over the cost of equity, ROA and capital, book value per share for durability, P/B for the price. Insurers: ROE alone, so no 3★. Investment holding companies are not rated yet (the overall, Quality and Moat show a dash) until the score is tested on them; the Value row still shows.
The metric
| Category | Valuation |
|---|---|
| Unit | stars (0–3) |