A practical economic moat checklist

What a moat is (and is not)

A moat is a reason competitors cannot easily copy the economics: pricing power, switching costs, network effects, cost advantage, or a regulated niche. It is not a brand you like, a product you use, or a stock that went up.

Moats show up in repeatable returns and stability of margins — not in a single good year.

A short checklist

1. Returns on capital — does ROIC / ROCE stay high through a cycle, or only at the peak?
2. Pricing — can the company raise prices without losing volume to a close substitute?
3. Switching costs — would customers eat pain (data, workflow, certification) to leave?
4. Scale / cost — is the cost lead structural (density, purchasing, process) or a temporary discount?
5. Reinvestment — can it deploy more capital at similar returns, or is the opportunity shrinking?
6. Disruption path — what would make the advantage irrelevant in five years (tech, regulation, a cheaper stack)?

If you cannot name the mechanism in one sentence, you do not have a moat thesis — you have a vibe.

Evidence vs. story

• Evidence: multi-year gross margin, customer retention comments, share of wallet, capacity that rivals cannot cheaply match
• Story: “category leader,” “loved brand,” “AI tailwind” with no unit-economics trail

Pair the checklist with gross margin and cash conversion. A wide moat that never turns into cash is a museum piece.

How to use this in research

Ask: “What is the moat mechanism for $TICKER, what would falsify it, and do returns on capital match that claim?” Then read the answer against filings and the margin chart — not against the slogan.

Educational only. A moat is not a reason to ignore valuation or when AI research fails.