The Magic Formula is a value investing system pioneered by hedge fund manager, Joel Greenblatt, which is designed to pick 'quality' stocks at 'cheap' prices. An overall ranking for each stock is created by combining the rank of a company's Return on Capital vs the UK market (its quality) with the rank of its Earnings Yield (its cheapness).
Greenblatt claims in The Little Book that Beats the Market that a portfolio of the top 30 Magic Formula stocks has averaged a 17-year annual return of 30.8% and beats the S & P 500 96% of the time. It should be noted that these returns are volatile and require a fully diversified portfolio.
The current Magic Formula Score for Vodafone is
Ranks vs Market
Return on Capital (Greenblatt)
826 / 1957
865 / 1986
Sum of Ranks
Greenblatt applies a USD50m Market Cap cut off for Magic Formula calculations in the US. For the UK market we apply a cutoff of GBP15m.
Vodafone has a mCap of GBP89,168
N.B. Magic Formula Rankings do not apply to financial stocks.
For further information on how the Magic Formula is calculated click here.
To view the Top Magic Formula Stocks in the Market click here.