The Acquirer’s Multiple is what you get when you take value investing, remove the bells and whistles, and focus on just one thing: price. Specifically, how cheap a company is relative to the cash it earns.
It was popularized by Tobias Carlisle, a value investor and author of The Acquirer’s Multiple (2017). He built on Greenblatt’s work — yes, the Magic Formula guy — but decided to simplify even further. Where Greenblatt used two metrics (earnings yield and return on capital), Carlisle zeroed in on just one: enterprise value to operating earnings.
One number. One rank. No fluff.
What is it
The idea isn’t new. Benjamin Graham used similar logic in The Intelligent Investor. Warren Buffett looked at return on capital in his early years. Greenblatt added a layer with his Magic Formula. Carlisle’s twist? Strip away the “quality” filter and go straight for deep value — companies that are dirt cheap, even if they don’t look great on paper.
According to Carlisle, by focusing purely on price (as long as earnings are real), you’re likely to catch companies that the market has overly punished. Maybe they’ve had a rough quarter. Maybe they’re boring. Maybe no one wants to talk about them at cocktail parties. That’s fine. If they’re cheap enough, they can bounce.
How it works
The Acquirer’s Multiple is defined as:
Enterprise Value / Operating Earnings
Where:
- Enterprise Value includes market cap + debt – cash
- Operating Earnings is typically EBIT or something close
You rank a group of stocks by this multiple, from lowest (cheapest) to highest. Then invest in the top 20–30.
There’s no need to factor in return on capital, brand value, or business quality. You’re buying what the market dislikes — not what it loves. It’s a contrarian approach wrapped in a spreadsheet.
Does it work?
In Carlisle’s backtests and follow-up data, the strategy has held up well — particularly among small and mid-cap stocks. Like the Magic Formula, it works best over the long term and when applied consistently. Year to year, it can lag the market. Sometimes badly. But that’s the nature of most deep value strategies. They’re uncomfortable by design.
Interestingly, Carlisle’s research showed that removing the “quality” filter (used in the Magic Formula) didn’t hurt returns — in some periods, it actually helped. His thinking: if a stock is cheap enough, even mediocre businesses can outperform once the market re-rates them.
What Do Value Investors Think?
It depends on your temperament.
Some investors like the simplicity. One metric, one signal. No narrative. Others prefer having some quality filter in place — especially to avoid value traps (companies that are cheap because they’re falling apart). Carlisle’s answer is that the filter is the price. He’s betting that deeply discounted businesses as a group will do well, even if a few fail.
For disciplined investors with a long view, it’s a compelling idea. Not flashy. Not particularly popular during growth-fueled bull runs. But grounded.
The Acquirer’s Multiple is part of a tradition — the kind of no-nonsense, valuation-driven investing that traces back to Graham and Buffett. Carlisle just stripped it down to one variable and built a system around it.
It may not tell you everything about a business. But it tells you what you’re paying — and that’s a good place to start.