Magic Formula Ranking
Good businesses at low prices, by Joel Greenblatt's two numbers: how much the company earns for its price, and how much it earns on the capital it uses.
The ranking will appear after the next update of company financial statements.
How the ranking works
Earnings yield is operating profit (EBIT) divided by enterprise value, which is market value plus long-term debt minus cash. A higher number means you pay less for each dollar of profit.
Return on capital is operating profit divided by the capital the business needs to run: working capital (current assets minus cash, minus current liabilities) plus property, plant and equipment. A higher number means a better business.
Every stock gets a rank on each number. The two ranks are added, and the lowest total comes first. Greenblatt describes the method in The Little Book That Beats the Market (2005), where he suggests buying 20 to 30 top-ranked stocks over a year and holding each for one year.
What to keep in mind
The ranking uses each company's last annual report, so a business whose profit has just collapsed can still rank high. The formula has also gone through long stretches of doing worse than the market. Use it as a list of companies to look at, then check each one: the stock checklist pages show health, earnings quality and red flags.
Figures from company XBRL financial statements on SEC EDGAR; market value is the latest weekly closing price times shares outstanding from the cover of the latest filing. Not investment advice.
About this page
WallStPal explains public SEC filings and congressional stock trade reports in plain English. Nothing is for sale; the site is free and supported by ads.
How to read it
- Form 4
- The form a company insider (officer, director or owner of more than 10%) must file with the SEC within two business days of buying or selling the company's shares.
- 13F
- A quarterly list of U.S. stocks held by an investment manager with more than $100 million, filed within 45 days after each quarter ends.
- STOCK Act
- A 2012 law that requires members of Congress to report stock trades by themselves, a spouse or a dependent child within 45 days.
A real example
In January 2016, when bank stocks were falling, JPMorgan Chase CEO Jamie Dimon bought 500,000 JPMorgan shares with his own money, worth about $26 million. His Form 4 made the purchase public within days, and investors read it as a strong sign of confidence.
Explain it like I'm 13
We read the long, boring forms that grown-ups file with the government and tell you what they say in normal words.
Data from public SEC filings and congressional reports. Information, not investment advice. Check every number against the filing linked on the page.