Enhanced Magic Formula Screener is one of the most exciting tools we have on the site.
We always wondered why Joel Greenblatt‘s magic formula does not use an average for ROIC. One year of high ROIC does not represent a moat, a few years of high ROIC does. Lo and behold our friends at Value Investing EU, have developed an enhanced magic formula screener, which uses 5 year ROIC. The screener is called ERP5.
Backtests show that this formula has crushed the magic formula in performance. Look below at one chart on the Eurozone. The orange is ERP5 and the light blue line is magic forumla.
The screen is based on the ERP5 :
This screener to find magic formula stocks ranking by 2 additional criteria: price-to-book value and 5 year average ROIC.
The screeners works as follow : It selects the 30 percent best companies ( with a market cap > 750 ml) first with the best 6 months momentum in the USA. ( based on the ideas of O’Shaughnessy)
This selection is next ordered ascending by their ERP5 rank ( as explained above)
The final 100 stocks can be viewed on your screen.
