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The Greenblatt Screener

"The Magic Formula: buy great companies at great prices."

— Joel Greenblatt

Joel Greenblatt's Philosophy

Joel Greenblatt is a Yale professor and hedge fund manager who discovered the 'Magic Formula' — a simple, mechanical way to find stocks that are both high-quality AND cheap. His formula beats the S&P 500 most years by ranking every company on two numbers: earnings yield (how cheap it is) and return on capital (how good it is).

Key Principles

  • Two Numbers Only: Earnings yield and return on capital — nothing else
  • Rank Everything: Score all companies, then buy the top-ranked basket
  • Diversification: Buy 20-30 stocks, not one or two
  • Hold & Rotate: Hold for a year, then re-rank and swap
  • Discipline Over Opinion: The formula removes emotion from investing

💡 Did You Know?

Greenblatt's Magic Formula returned 30% per year (vs. 16% for the S&P 500) over a 20-year period in his book 'The Little Book That Beats the Market'. He says the secret isn't genius — it's doing the boring math that other investors are too lazy or emotional to do.

Screener Criteria

Earnings Yield (EBIT/EV)
> 10%
Cheap relative to earnings
Return on Capital (EBIT/NWC)
> 15%
High-quality capital use
Enterprise Value
Any
Price minus cash plus debt
Net Working Capital
Positive
Operating efficiency
Rank Position
Top 20
Buy the highest-ranked basket

📊 Analyze Any Stock

Enter a ticker symbol to see how it measures up against Greenblatt's criteria

Try: COST, MCD, ORCL, UNH, CAT, or any US stock ticker

Example Results

Companies matching Greenblatt's criteria (for educational purposes only)

📚 Educational Data Updated: Delayed data for learning purposes
Company Ticker Earnings YieldReturn on CapEVRank Magic Pick
Costco
Warehouse retail		 COST 14.2%28.5%$400B#3 Top Pick
McDonald's
Fast food		 MCD 11.8%19.2%$190B#7 Top Pick
Caterpillar
Heavy machinery		 CAT 12.5%16.8%$140B#12 Top Pick
Netflix
Streaming		 NFLX 4.1%22.3%$300B#45 Watch
Meets Criteria
Below Threshold
Top Pick Ranks in the top basket
← Back to Screeners Learn More About Greenblatt

Deep Dive: Understanding Greenblatt's Criteria

🪄 The Magic Formula Explained

Greenblatt's formula ranks every company on two numbers, then combines the ranks:

  • Earnings Yield: EBIT ÷ Enterprise Value — like a bond yield, higher is cheaper
  • Return on Capital: EBIT ÷ Net Working Capital — higher means the business is excellent at using money
  • Combine Ranks: Add the two ranks together; the lowest total wins
  • Buy the Basket: Buy the top 20-30 companies, hold for a year, then re-rank

💵 Enterprise Value: The Real Price

Greenblatt doesn't use market cap — he uses Enterprise Value, the true cost of buying the whole company:

  • The Formula: EV = Market Cap + Debt − Cash
  • Why It Matters: A company with $10B in cash is cheaper than one without, at the same stock price
  • EBIT: Earnings Before Interest and Taxes — profit from operations alone
  • Net Working Capital: Current assets minus current liabilities — the money needed to run daily operations

📊 Why It Beats the Market

The Magic Formula works because it forces you to buy what most investors avoid:

  • Boring Wins: The top-ranked stocks are usually unglamorous companies nobody talks about
  • Cheap + Good: Most investors pick either cheap OR good — the formula requires both
  • Discipline: It removes your ability to cherry-pick favorites
  • The Catch: It still has losing years — the key is staying the course for decades