Sector profiles

why a bank isn’t graded like a chipmaker · How the app turns all of this into a grade

The same yardsticks don’t fit every business. A software company’s free cash flow is real and steady, so a DCF fits it well. An oil producer’s cash flow swings with the commodity — extrapolating a peak year for five years is fantasy. And a bank doesn’t have “free cash flow” in any meaningful sense at all: money flowing through a balance sheet isn’t money the owners can pocket. So the app scores every stock through a sector profile — an assumption set matched to how that kind of business actually works.

• The DCF’s growth cap — 30% for software, 20% for chipmakers (so a cycle rebound can’t masquerade as secular growth), 8% for energy, 6% for REITs and utilities.
• The component weights — nudged, never replaced: trend counts a bit more for cyclicals, analyst work counts more in healthcare (trial outcomes beat charts), entry discipline counts more for consumer names. Tilts stay within ×0.8–×1.25.
• The quality lens — a REIT carrying 5× EBITDA of debt is normal, not distressed, so its debt thresholds shift; a bank’s debt/EBITDA is dropped entirely and its quality is judged the right way: return on equity versus its cost of equity.
• For banks and insurers, the FCF-based DCF is switched off entirely rather than computed wrongly — the card says so, and value leans on relative valuation and the (haircut) analyst target instead.

Every card states which profile scored it, why that profile exists, and the exact weights used after the adjustment — so a sector adjustment is something you can audit, not a hidden thumb on the scale.

growth cap

— the ceiling on the DCF’s year-1 growth assumption, set per sector

tilt

— a small multiplier on a component’s weight, renormalized so weights still sum to 1

debtShift

— how far the debt-tolerance thresholds move for structurally-leveraged sectors

Profiles are judgment encoded as fixed rules — reasonable people could set different caps. That’s exactly why each one states its rationale and shows its numbers: disagree with a cap, and you know precisely what you’re disagreeing with.