Cheap companies that are actually healthy
Two of the most-tested ideas in value investing, run over what companies actually filed with the SEC. Joel Greenblatt’s magic formula finds the ones earning the most relative to what they cost; Joseph Piotroski’s nine-point check says whether the business behind the price is getting better or quietly falling apart.
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Where these numbers come from
Not from a data vendor’s summary — from the filings themselves. Every figure is an as-reported line out of a company’s own annual report, stored with the date it was published. That matters more than it sounds: most financial databases overwrite a number when a company restates it, so looking back at 2015 shows you figures nobody had in 2015. Here, a filing is invisible until the day it was filed.
Why a cheap company isn’t enough
The magic formula’s whole idea is buying good businesses at cheap prices rather than either one alone. It ranks companies twice — once on how much they earn against their price, once on how much they earn against the capital tied up running them — and adds the two rankings. A company placed 20th on both beats one placed 1st and 200th, which is exactly the point: the cheapest company on any screen is usually cheap for a reason.
The F-score is the second opinion. It asks nine yes/no questions about the past year — are profits up, is cash actually coming in, is debt falling, are margins widening — and a low score on a cheap stock is the classic value trap. High on both is the interesting square.
What this can’t tell you
US companies only, and only back to 2009 when electronic filing became mandatory — so nothing European, and no dot-com or 2008 history. Banks, insurers and utilities are excluded: a bank’s balance sheet is its product, so “capital tied up in the business” means nothing, and a regulator sets a utility’s returns. And every ranking rests on the last annual report, so a company can be three quarters into a very bad year and still screen beautifully.
None of this has been backtested here, and none of it is advice. It is a starting list, not a buy list.
Want to test a rule on one specific stock instead? That’s the backtester. Prefer momentum to value? That’s the momentum screener. Want to track what you actually own? That’s what Pulse is for.