Well, one could make it even easier... With Greenblatt's formula:
1) ROC (>10 %)
1) EBIT/EV
;-)
I'm starting to lean on that more and more. It makes so much intuitive sense, and is so easy. As you say, profit is the main thing. And if you have a great business idea and have a huge ROC – how can it fail?
Buffett often emphasized ROIC too. I just finished Lowenstein's Buffett book. Many great one-liners that will stick with me. One, when being RJR Nabisco pitched their business, he said something along the lines of "you don't need to tell me the numbers. I know the product is great. You make a it for a penny, and sell it for a dollar – and you sell it to addicts".
That's why I like Swedish Match. It is really a Buffett stock. Richly valued, but with a huge MOAT and great ROC (~80-90 % last 5 years (!) though it's difficult to calculate for them due to a weird negative equity situation). They make snus, a specifically Swedish product which now is starting to spread, especially in the form of "white tobacco" (their product is ZYN, which IMO is vastly superior to competitors) which from what I take it has reached the US in a big way too?
And, they make matches too – the ROC on those little things back in the day, man oh man.... |
