Two questions, one score: how profitably does the capital work, and how cheaply can you buy the operating business? 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.
Return on capital (ROC) measures what every invested euro earns operationally.
EV/EBIT values operating profit from an acquirer's perspective, debts included.
Only stocks that score on both factors reach the upper threshold. Strength in one is not enough.
Value destroyers (ROC below 5%) and unprofitable or massively overpriced names take deductions.
For investors with patience and discipline: the cheapest combinations of quality and price usually come with short-term bad news attached. If you trust the valuation anchor and deliberately ignore momentum, this is your lens.
The two-factor strategy hunts for the rare combination of above-average capital returns and an attractive valuation. The principle became famous as Joel Greenblatt's “Magic Formula”: good companies (high return on capital) at cheap prices (high earnings yield, i.e. low EV/EBIT) beat the market over time. StockScorer translates the original ranking into fixed point tiers: every stock is measured against absolute thresholds rather than the rest of the universe, keeping the score fully traceable at all times.
Both factors are translated into disjoint point tiers. Capital returns: an ROC of 40% or more (quasi-monopoly competitive advantages) earns +5 points, 25–40% +3, 15–25% +1; below 5% or missing scores −2. Valuation: an EV/EBIT below 6.7 (equivalent to an earnings yield above 15%) earns +5, up to 10 +3, up to 16.7 +1; from 33.3 or with no multiple (negative EBIT) −2.
The sum of both ladders yields a score from −4 to +10. The upper threshold sits at 6 (large caps), 7 (mid caps) and 8 points (small caps). A high match demands genuine strength in both dimensions at once.
Return on capital (ROC): operating profit relative to capital employed; StockScorer uses return on capital employed (ROCE), which neutralises leverage effects.
EV/EBIT: enterprise value (market capitalisation plus net debt) divided by operating profit. Unlike the P/E ratio, this multiple cannot be dressed up with balance-sheet leverage.
Point tiers: +5/+3/+1 per factor, −2 for value destruction or massive overvaluation. A missing EV/EBIT deliberately counts as the worst tier. Negative EBIT produces no multiple.
Greenblatt's original builds a relative ranking across the whole universe (“buy the 30 best ranks”). StockScorer instead uses absolute thresholds derived from historical deciles: a stock's score depends only on its own numbers, not on the composition of the universe. That is more transparent, though in extreme market phases it can produce more or fewer hits than a fixed ranking would.
The famous psychological hurdle remains: high-scoring stocks are frequently names with short-term bad news (mean reversion). The strategy demands looking systematically at exactly the moments when it feels uncomfortable.
For fundamental value investors who appreciate a clear, two-dimensional logic and can live with interim underperformance until the market recognises the mispricing.