Note: The figures in this article are sourced from a third-party financial data provider (originally cited as howebusinessdaily.com) and reflect data available around August 2019. Treat all specific numbers as a historical snapshot, not current values.
Overview
Quantitative screening tools give investors a structured, repeatable way to compare companies across valuation, profitability, and momentum dimensions. This article applies several well-known quant frameworks — the Value Composite, Magic Formula Rank, Return on Invested Capital (ROIC), Shareholder Yield, price index data, and financial health scores — to two widely followed stocks: ServiceNow, Inc. (NYSE:NOW) and Vodafone Group Plc (LSE:VOD). Understanding what each metric measures helps investors interpret these scores in context rather than in isolation.
Value Composite Scores
The Value Composite (VC) methodology was developed by James O’Shaughnessy and aggregates five valuation ratios into a single score ranging from 0 to 100:
- Price-to-Earnings (P/E)
- Price-to-Cash Flow (P/CF)
- EBITDA-to-Enterprise Value (EBITDA/EV)
- Price-to-Book Value (P/B)
- Price-to-Sales (P/S)
A score near 0 suggests the stock is relatively undervalued across these dimensions; a score near 100 suggests it is relatively overvalued. The Value Composite 2 (VC2) adds a sixth input — Shareholder Yield — to give a more complete picture of how much value is being returned to investors alongside valuation.
| Company | VC1 Score | VC2 Score |
|---|---|---|
| ServiceNow, Inc. (NYSE:NOW) | 80 | 82 |
| Vodafone Group Plc (LSE:VOD) | 30 | 24 |
ServiceNow’s VC1 score of 80 places it in the higher-valuation tier of the scoring range, consistent with growth-oriented technology companies that trade at premium multiples. Vodafone’s VC1 score of 30 indicates relatively more attractive valuations on traditional metrics, which aligns with its profile as a mature telecom operator. Notably, Vodafone’s VC2 score (24) is lower than its VC1 score (30), suggesting that adding Shareholder Yield further improves its apparent value ranking.
Return on Invested Capital (ROIC)
ROIC measures how efficiently a company converts invested capital into profit. It is a key input in Joel Greenblatt’s Magic Formula and is widely used to distinguish high-quality businesses from capital-inefficient ones. The formula is typically expressed as:
ROIC = Net Operating Profit After Tax (NOPAT) / Invested Capital| Metric | ServiceNow (NOW) | Vodafone (VOD) |
|---|---|---|
| ROIC (current) | -0.015148 | 0.053148 |
| ROIC 5-Year Average | -0.140710 | 0.039295 |
| ROIC Quality Ratio | 0.306066 | 20.252521 |
ServiceNow’s negative ROIC reflects the heavy investment phase typical of high-growth SaaS companies that prioritise revenue expansion and R&D over near-term profitability. Vodafone’s positive — though modest — ROIC indicates that the telecom generates a return above its cost of capital on current invested assets. Vodafone’s significantly higher ROIC Quality ratio suggests more consistent and reliable capital returns over time.
Shareholder Yield
Shareholder Yield provides a more complete picture of capital return than dividend yield alone. Two variations are commonly used:
- Shareholder Yield (standard): Dividend yield + net share buyback yield
- Shareholder Yield (Mebane Faber): Dividend yield + net share buyback yield + net debt repayment yield
| Metric | ServiceNow (NOW) | Vodafone (VOD) |
|---|---|---|
| Shareholder Yield (standard) | -0.050035 | 0.034138 |
| Shareholder Yield (Mebane Faber) | -0.05848 | -0.23406 |
ServiceNow’s negative standard Shareholder Yield indicates that during this period the company was a net issuer of shares rather than a net repurchaser — common for growth-stage technology firms using equity for compensation and acquisitions. Vodafone’s standard Shareholder Yield is modestly positive, supported by its dividend programme. However, Vodafone’s deeply negative Mebane Faber yield reveals significant net debt accumulation, which offsets headline capital returns when viewed holistically.
Magic Formula Rank (MF Rank)
The Magic Formula was developed by hedge fund manager Joel Greenblatt and detailed in his book The Little Book That Beats the Market. It ranks stocks by combining two factors:
- Earnings Yield (EBIT / Enterprise Value) — a measure of cheapness
- Return on Capital (EBIT / Net Fixed Assets + Working Capital) — a measure of quality
Stocks are ranked on each factor separately and those ranks are combined. A lower combined rank indicates a more attractive stock under this framework.
| Company | MF Rank |
|---|---|
| ServiceNow, Inc. (NYSE:NOW) | 11,600 |
| Vodafone Group Plc (LSE:VOD) | 8,880 |
Vodafone’s lower MF Rank indicates a relatively more favourable combined score on earnings yield and return on capital compared to ServiceNow under Greenblatt’s system. ServiceNow’s high rank is consistent with its premium growth valuation and negative near-term profitability metrics.
Price Index: Historical Momentum
The price index is a simple momentum indicator calculated as:
Price Index = Current Share Price / Share Price N months agoA value above 1.0 indicates price appreciation over the period; below 1.0 indicates depreciation.
ServiceNow (NYSE:NOW) — Price Index
| Time Period | Price Index |
|---|---|
| 1 month | 0.93133 |
| 3 months | 0.99835 |
| 5 months | 1.09403 |
| 10 months | 1.62096 |
| 12 months | 1.37038 |
| 24 months | 2.37879 |
| 36 months | 3.62733 |
ServiceNow’s long-term price momentum is strongly positive, with the stock more than tripling over the prior 36 months as of this data snapshot. The slight pullback in the 1-month and near-flat 3-month figures suggest short-term price consolidation after an extended run.
Vodafone (LSE:VOD) — Price Index
| Time Period | Price Index |
|---|---|
| 1 month | 0.99369 |
| 3 months | 1.21901 |
| 5 months | 1.11676 |
| 10 months | 1.08084 |
| 12 months | 0.90860 |
| 24 months | 0.79629 |
| 36 months | 0.80351 |
Vodafone’s longer-term price indices show meaningful depreciation over 12, 24, and 36 months, consistent with the challenges facing legacy telecom operators during this period. The positive short- and medium-term (3- and 5-month) indices may suggest a recovery bounce was underway at the time of this data snapshot.
Financial Health Scores
C-Score (Earnings Manipulation Risk) — ServiceNow
The C-Score, developed by James Montier, flags potential earnings manipulation by examining accounting red flags including:
- Growing divergence between net income and operating cash flow
- Increasing days sales outstanding (DSO)
- Rising days sales of inventory (DSI)
- Increasing total assets relative to sales
- Declining depreciation rates
- High total asset growth
The scale runs from -1 to 6, where -1 means insufficient data, 0 indicates no evidence of manipulation, and 6 suggests a high likelihood of questionable accounting. ServiceNow’s C-Score of 3.0 sits in the moderate range, warranting attention but not alarm. Investors should cross-reference this with qualitative analysis of the company’s financial statements.
Piotroski F-Score — Vodafone
The Piotroski F-Score, developed by accounting professor Joseph Piotroski, assesses overall financial strength on a scale of 1 to 9 using nine binary tests grouped into three categories:
- Profitability: ROA, operating cash flow, change in ROA, accruals (cash flow vs. net income)
- Leverage & Liquidity: Change in long-term leverage, change in current ratio, absence of new share issuance
- Operating Efficiency: Change in gross margin, change in asset turnover
A score of 8–9 signals a financially strong company; a score of 1–2 indicates weakness. Vodafone’s F-Score of 4 places it in the middle of the range — neither distressed nor particularly strong — reflecting the mixed financial picture of a large, debt-laden telecom undergoing network investment and restructuring.
Return on Assets (ROA) — Vodafone
Return on Assets measures net profitability relative to total assets:
ROA = Net Income After Tax / Total AssetsVodafone’s ROA of -0.055078 was negative at this snapshot, indicating a net loss relative to total assets during the period — a figure that should be interpreted alongside the company’s large capital expenditure cycle and amortisation of acquired assets.
Summary Comparison
| Metric | ServiceNow (NOW) | Vodafone (VOD) |
|---|---|---|
| VC1 Score | 80 (expensive) | 30 (cheaper) |
| VC2 Score | 82 | 24 |
| ROIC (current) | -0.015 | +0.053 |
| ROIC 5yr Avg | -0.141 | +0.039 |
| Shareholder Yield | -0.050 | +0.034 |
| MF Rank | 11,600 | 8,880 |
| 36-Month Price Index | 3.63 (strong growth) | 0.80 (decline) |
| C-Score | 3.0 (moderate risk) | N/A |
| Piotroski F-Score | N/A | 4 (mid-range) |
| ROA | N/A | -0.055 |
Interpreting These Metrics in Context
These quant scores are screening tools, not buy or sell recommendations. A few principles are worth keeping in mind when working with composite metrics like these:
- Growth vs. value trade-off: High Value Composite scores (like ServiceNow’s 80) are typical for high-growth technology companies. These scores reflect premium pricing, not necessarily poor quality. Comparing them directly against value-oriented stocks (like Vodafone) without context can be misleading.
- Negative ROIC in growth companies: Companies that are heavily investing in future growth — through R&D, sales infrastructure, or platform development — often show negative or near-zero ROIC in the short term. This does not automatically indicate poor capital allocation.
- Shareholder Yield limitations: Net share issuance (which drives negative Shareholder Yield) is common in SaaS companies using equity-based compensation. This can dilute existing shareholders but is often a normal operating cost for talent-intensive businesses.
- Composite scores require judgment: No single quant metric tells the full story. Investors benefit most from using these scores as a starting point for deeper fundamental analysis rather than as standalone decision-making tools.
- Data freshness matters: These figures are from approximately August 2019. Both ServiceNow and Vodafone have undergone significant strategic, financial, and operational changes since then. Do not use these specific numbers for current investment decisions.
Quantitative frameworks add discipline to the stock screening process, but they work best when combined with qualitative assessment of competitive positioning, management quality, industry dynamics, and macroeconomic conditions. Using multiple frameworks together — as this comparison does — helps reveal a more complete picture than any single ratio can provide.