What would an acquirer pay for the operating business? A single multiple decides: the cheaper, the more points. Automated across the entire market.
Save the strategy and StockScorer checks its rules for you every day. You'll get a heads-up whenever a stock crosses the upper or lower score threshold.
Once enough history is available, the backtest chart for this strategy will appear here.
Every stock runs through the same disclosed rules. The points add up to a score, traceable down to the individual rule.
Each rule checks a metric against a threshold, for example ROE above 15 %.
You decide how much each rule counts: from +1 to +3 or −1 to −3.
The sum is the score. Above the upper threshold: a high match with the profile.
These terms describe only the match with the criteria, not a recommendation to buy or sell.
EV/EBIT prices the operating result (net debt included), the way an acquirer calculates.
The cheapest valuation decile earns full points; the most expensive market half costs points.
Positive free cash flow is the margin of safety until the market corrects the undervaluation.
Negative cash flow combined with high leverage is the most dangerous mix, and it costs points.
For committed value investors who want maximum simplicity: no quality factors, no momentum, just the price. The strategy deliberately buys the unloved. That takes patience and the willingness to invest against prevailing sentiment.
EV/EBIT Deep Value is the radically simplified alternative to multi-layer value systems. The idea became known as the "Acquirer's Multiple" through Tobias Carlisle: high returns on capital attract competition and rarely last (mean reversion). What remains is the price. So only one thing counts here: enterprise value relative to operating earnings, i.e. EV/EBIT including all debt. A positive free cash flow serves as the margin of safety: the company must stay solvent long enough for the market to re-rate it.
The core is a single multiple: enterprise value (market capitalisation plus net debt) divided by operating earnings. An EV/EBIT up to 5 (historically the cheapest tenth of the market) earns +3 points, up to 8 still +1. From an EV/EBIT of 12 the most expensive market half begins: −2 points. If the multiple is missing because EBIT is negative, that deliberately counts to the worst tier as well.
On top comes the margin of safety: positive free cash flow adds +1, while the combination of negative cash flow and a debt-to-equity ratio above 2 costs a point. The upper threshold is 2 points for large caps, 3 for mid caps and 4 for small caps: a small cap needs the cheapest decile plus intact cash flow.
EV/EBIT 0–5: cheapest valuation decile (+3). EV/EBIT 5–8: very cheap (+1). EV/EBIT 8–12: neutral zone. From 12 or missing: most expensive market half or unprofitable (−2).
Free cash flow positive: margin of safety (+1). Free cash flow negative with leverage above 2: balance-sheet distress (−1).
Why EV/EBIT instead of P/E? The P/E ratio ignores capital structure: a highly leveraged company looks optically cheap. Enterprise value prices the debt in: the perspective of someone buying the whole business.
The original ranks the entire universe by EV/EBIT and buys the cheapest percentiles. StockScorer translates the ranks into absolute tiers (decile and quartile proxies from historical market data). A stock's score depends only on its own numbers and stays fully traceable. In extreme market phases the absolute ladder can produce more or fewer hits than a true ranking.
The strength is also the weakness: without a quality filter, structurally sick companies land in the cheapest decile too. The strategy bets that the price discount overcompensates for that risk. If you want both, combine it with the 9-Point Balance-Sheet Check as a second filter.
For experienced value investors with a contrarian streak who prefer one maximally simple, disciplined rule over a complex factor blend.