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Narrow Moat

Narrow Moat

What is 'Narrow Moat'

A slight competitive advantage that one company enjoys over competing firms operating in the same or similar type of industry. A narrow moat is still an advantage for a company, but it is one that only provides a limited amount of economic benefit and will typically last for only a relatively short period of time before competition marginalizes its importance.

Explaining 'Narrow Moat'

The phrase "economic moat" was coined by legendary investor Warren Buffett. This phrase has since been refined to differentiate between "wide moats" and "narrow moats". Wide economic moats offer substantial economic benefits and are expected to endure for a prolonged period of time, while narrow moats offer more modest economic benefits and typically last for a shorter period of time.


Narrow Moat FAQ

What is a wide moat?

A wide economic moat is a type of sustainable competitive advantage a business possesses that makes it hard for competitors to wear down its market share. Several factors might cause it to make it difficult for other businesses to steal market share.

What is a moat trend?

The moat trend rating shows the changes in the company's competitive position over time, and can either be "positive," the competitive position is strengthening; negative, for otherwise; or stable.

What is a no moat rating?

Morningstar divides stocks into three using moat size: wide moat (companies with the strongest competitive advantage) narrow moat (those with some competitive advantage) no moat (those with no sustainable competitive advantage)

Where can I find economic moats?

According to Morningstar Equity Research, five key attributes give companies economic moats, and are seen as sources of sustainable competitive advantages: 1) Network Effect; 2) Intangible Assets; 3) Cost Advantage; 4) Switching Costs; and 5) Efficient Scale.

What is a moat in business?

The term economic moat, popularized by Warren Buffett, is the ability of a business to maintain competitive advantages over its competitors and protecting its long-term profits and market share from competing firms.

How is economic moat calculated?

According to Morningstar Equity Research, five key attributes give companies economic moats, and are viewed as sources of sustainable competitive advantages: 1) Network Effect; 2) Intangible Assets; 3) Cost Advantage; 4) Switching Costs; and 5) Efficient Scale.

How do I find a company's moat?

Identify the company's major competitors, and then compare their revenues and profits. A big difference between your company's earnings and its competitors shows it has a wide moat. Apple has a wide moat because its iPhone sales far outpace any other company's.

Further Reading

Financial Metrics In Wide-Moat FirmsFinancial Metrics In Wide-Moat Firms
clutejournals.com [PDF]
… Moreover, in their price trajectory, moated firms demonstrate less volatility than their no moat … would be progressively enhanced by position within the wide- and narrow-moat categories … Some companies may have wider moats than others even though they garner the same moat …

Sustainable competitive advantage and stock performance: the case for wide moat stocksSustainable competitive advantage and stock performance: the case for wide moat stocks
www.tandfonline.com [PDF]
… Moreover, in their price trajectory, moated firms demonstrate less volatility than their no moat … would be progressively enhanced by position within the wide- and narrow-moat categories … Some companies may have wider moats than others even though they garner the same moat …

Can Economic Moats Provide Investors With a Competitive Advantage?Can Economic Moats Provide Investors With a Competitive Advantage?
creativematter.skidmore.edu [PDF]
… Moreover, in their price trajectory, moated firms demonstrate less volatility than their no moat … would be progressively enhanced by position within the wide- and narrow-moat categories … Some companies may have wider moats than others even though they garner the same moat …

Stewardship And Financial Performance In Wide-Moat FirmsStewardship And Financial Performance In Wide-Moat Firms
clutejournals.com [PDF]
… Moreover, in their price trajectory, moated firms demonstrate less volatility than their no moat … would be progressively enhanced by position within the wide- and narrow-moat categories … Some companies may have wider moats than others even though they garner the same moat …

Economic growth potential creating a real put and the resulting valuation of the firmEconomic growth potential creating a real put and the resulting valuation of the firm
link.springer.com [PDF]
… Moreover, in their price trajectory, moated firms demonstrate less volatility than their no moat … would be progressively enhanced by position within the wide- and narrow-moat categories … Some companies may have wider moats than others even though they garner the same moat …

An ordered probit model of Morningstar individual stock ratingsAn ordered probit model of Morningstar individual stock ratings
www.tandfonline.com [PDF]
… Moreover, in their price trajectory, moated firms demonstrate less volatility than their no moat … would be progressively enhanced by position within the wide- and narrow-moat categories … Some companies may have wider moats than others even though they garner the same moat …


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