A high gross profitability ratio is evidence that a company has a sustainable competitive advantage. According to Robert Novy-Marx, controlling for profitability dramatically increases the performance of value strategies, especially amongst the largest, most liquid stocks.

It's important that when you use this ratio to compare companies, you look at companies operating in the same industry, industry group, or sector. On top of that, it's important that you calculate the medians based on a specific stock universe, selecting, for instance, only companies active in a specific country.

To give you these unique new insights, we added the gross profitability ratio to our scorecard. It's only 1 additional line in our quality factors grid, but it makes the scorecard so much better.