Who this is for — Value and long-term investors: moat explains why competitors do not erode margins and why fair value holds over time.
An economic moat is a structural advantage protecting profits and market share — brand, cost, network effects, switching costs, licenses, scale — making the business hard to replicate.
In plain terms — «Moat» around the corporate castle — without it, competition compresses margins and multiples collapse.
Moat types
| Type | Example | Test |
|---|---|---|
| Cost advantage | Scale logistics | ROIC vs peers |
| Intangible | Brand, patents | Pricing power |
| Switching cost | Enterprise ERP | Low churn |
| Network effect | Marketplace, social | Value ↑ with users |
| Efficient scale | Local utility | Few entrants |
Moat is measured on persistent ROIC > WACC and margin stability through cycles — not one strong quarter.
For traders/investors
- Earnings miss on wide-moat name → opportunity if thesis intact
- Disruption (AI, regulation) can erode historical moat
- Crypto: moat often weak — protocol forks, token copies
Common mistake — Labeling every cyclical market leader «moat» — commodities and fashion tech may have no real ditch.
Example — Software with high switching cost: churn <2%, NRR >120% → pricing power; commodity retailer without brand → margins compressed each recession.
Card
- Metrics: ROIC, gross margin trend, share.
- Risk: disruption, regulation.
- Read: Fair value + financial statement quality.