In montecapital/financer: Import financial information in R

knitr::opts_chunk$set(
  collapse = TRUE,
  comment = "#>"
)

The Magic Formula is a value investing strategy developed and described by Joel Greenblatt. The strategy seeks good companies at bargain prices.

Good companies are those with a high Return on Capital (ROC). That is, less capital is required per dollar made. This makes more prone to faster growth. Cheap companies are defined by the Earning yield (EY), i.e. how much the company makes relative to its price. The higher the earning yield the cheaper the company is.

Both numbers, ROC and EY, can be computed using assess_magicf() function, passing the tiker symbol of a company.

library(financer)

# report roc and ey
assess_magicf("ILMN", "XNAS")

Values have no meaning on their own. According to Greenblatt, these numbers should be used to compare and order companies. In the following, we compute the latest numbers of Qiagen (QGEN), one of the main competitors of Illumina that operates on the New York Stock Exchange:

# report roc and ey
assess_magicf("QGEN", "XNYS")

Currently (Jan. 2022), EY are slightly higher for QGEN ($0.06$ vs. $0.019$), meaning that the company is cheaper from the investor's perspective. However, the ROC of QGEN is considerably smaller than ILMN ($-0.81$ vs. $0.36$). Hence, ILMN is healthier from a business perspective, specially considering the negative sign. Negative values warn about the company's liabilities being greater than assets.

The usage of the magic formula requires to run the analysis for all the companies in the market between certain market-cap values. Then sort the companies by ROC and assign and order value. Repeat the same operation with EY and finally sum the order values.

montecapital/financer documentation built on Jan. 13, 2022, 5:46 a.m.