No. of Recommendations: 3
Hat tip to JoeySolitro2 for bringing this company to my attention. This company helps businesses with big data analytics (kind of like Splunk).

Here's my attempt to rank NEWR on my checklist (http://boards.fool.com/brian39s-quality-checklist-version-20...)


Metric (score potential) NEWR

Financial:

Financial Resilience:(0 - 5) 5
Gross Margin: (<50%, 50% to 80%, >80%) (0 - 3) 3
Returns On Capital: (Low, Average, Rising)(0 - 3) 0
FCF: (Negative / Positive / Positive and growing fast) (0 - 3) 3 (recently became FCF positive)
EPS: (Negative / Positive / Positive and growing fast) (0 - 3) 3 (recently become EPS positive)

Moat:
Network effect (None / Weak / Strong) (0 - 15)
Switching costs (None / Weak / Strong) (0 - 15) 15
Durable Cost Advantage:(0 - 15)
Intangibles: (0 - 15)
Moat Direction: (Narrowing / Stable / Widening) (0 - 5) 5 (more services)

Potential:
Optionality:(0 - 7) 5
Organic Growth Runway: (G.D.P. / 2x or 3x G.D.P. / 15%+) (0 - 4) 4
Top dog And/Or Industry Disruptor:(0 - 3) 3 (Cloud-baased data analytics)
Operating Leverage Ahead?(0 - 4) 4

Customers:
Acquisition:(0 - 5) 1 (expensive to onboard)
Dependence: (0 - 5) 5

Company-specific factors:
Recurring Revenue: (None / Some / Tons) (0 - 5) 5
Pricing Power: (None / Inflation / Tons) (0 - 5) 5

Management & Culture:
Soul in the game: (Founder/Family Run/Long Tenured CEO) (0 - 4) 4
Inside ownership: (None / Modest / Very High) (0 - 3) 3
Glassdoor ratings: (0 - 4) 4
Mission statement? (Simple, Inspirational, Optional-able) (0 - 3) 0 (I couldn't find one)

Stock:
Performance Vs. S&P 500:(0 - 4) 3 (just shy of 100% outpeformance)
Shareholder Friendly Actions:(0 - 3) 0
Consistently Beats Expectations?(0 - 4) 4

Pre Gauntlet Score: 84 (excellent)

The Gauntlet

Customer Concentration:(-5 , -3, 0) -3 (1 company is 12% of AR)
Industry Disruption:(-5, -3, 0) 0
Outside Forces:(-5, -3, 0) 0
Big Market Loser: (-5, -3, 0) 0
Binary Event: (-5, 0) 0
Extreme Dilution: (-4, -2, 0) -2
Growth By Acquisition: (-4, -2, 0) 0
Complicated Financials (-3, 0) 0
Antitrust Concerns: (-3, 0) 0
Political Risk: (-3, -2, 0) 0
Currency Risk:(-2, -1, 0) 0

Final score: 79


For perspective, the highest score possible is a 100, and the lowest score possible is -44.

A score over 70 generally gets me excited, so NEWR's 79 is excellent. Furthermore, you could argue that deducting 3 points for customer concentration is going overboard because the company has 15,000+ customers and none of them make up more than 10% of revenue (and haven' for the last 3 years). However, I'm going conservative here, but if you wiped that away then NEWR should score an 82, which is fantastic.

Brian

*******
FAQ:

Is there a spreadsheet that has all of your data?
Yes, but I do not want to make it publicly available. I will post on a company by company basis to the boards. Feel free to follow me if you want to see my most recent rankings.

What company got the highest score so far?Alphabet (86) and Paycom Software (86)

What data do you have to show that this methodology works? Very little. This project was started a few months ago. I'm currently thinking through ways to measure its long-term effectiveness, but my gut feeling tells me that it will help me pick better stocks.

What about valuation? This data is only designed to help me determine business quality, which is far more important than valuation. However, whenever I personally make buy/hold/sell decisions, I always consider valuation too.
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