Farmer Bros Co (Farmer Bros Co) Predictability Rank

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What is Farmer Bros Co Predictability Rank?

Warren Buffett said many times that the companies he likes are:

1. Simple businesses that he understands
2. that have predictable and proven earnings and
3. with economic moat
4. those can be bought at a reasonable price.

It is hard to quantify "simple businesses that he (Buffett) understands", so we will focus on the other three characteristics instead. In GuruFocus Research: What worked in the market from 1998-2008? Part I: Introduction of Predictability Rank, we will show that the businesses that have predictable and proven earnings are usually also simple businesses that an average person could understand.

GuruFocus conducted a back test study of Warren Buffett's strategy of "buying good companies at fair prices" for the years from 1998-2008.

Farmer Bros Co Predictability Rank Calculation

In our database there are 2403 stocks that have been traded from Jan. 2, 1998 to Aug. 31, 2008. We have the complete 10-year financial data and trading prices of these companies for this period. We rank the predictability of these companies based on the consistency of their revenue per share and EBITDA (earning before interest, tax, depreciation and amortization) per share over the past ten fiscal years, and study the correlation between the stock performances and the predictability of the business.

Our study may be subject to these biases and assumptions:

Dividend yields are not counted for investment returns
Effects of price changes due to spin-offs may not be fully adjusted
Study is subjected to survivorship bias due to de-listing, bankruptcy, LBO, M&A, etc.

The correlation between business predictability and investment returns of a company is showed below.

Correlation Between Business Predictability and Investment Returns

	Predictables	Non-Predictable	All stocks
Total Number of stocks	570	1833	2403
Total Lost Money	61	830	891
Total Lost More Than 50%	18	412	430
Total Lost More Than 90%	4	86	90
Average Gain	260.6%	100.0%	138.1%
Median Gain	150.0%	13.0%	39.0%
Maximum Gain	2852.0%	11483.0%	11483.0%
Maximum Loss	-100.0%	-100.0%	-100.0%
Annualized Average Gain	12.7%	6.7%	8.4%
Annualized Median Gain	8.9%	1.1%	3.1%

For the 570 predictable companies, we have seen strong correlation between the predictability of businesses and the stock performances over the past 10 years, regardless of the valuation of business at 1998. Accordingly, we have ranked the business predictability from 5-star to 1-star, as shown in this table.

Predictability Rank	5-Star	4.5-Star	4-Star	3.5-Star	3-Star	2.5-Star	2-Star	1-Star (non-predictable)	Average among all
% Out of All 2403 Stocks	3.3%	2.9%	3.7%	3.3%	3.3%	3.7%	3.3%	76.3%	100%
% that are in Loss (10y)	3%	10%	8%	9%	11%	18%	16%	45%	37%
Average Gain (10y)	364.6%	330.9%	278.0%	235.1%	243.5%	227.8%	154.8%	100.0%	138.1%
Median Gain (10y)	238.5%	193.5%	171.0%	159.0%	132.5%	113.5%	87.0%	13.0%	39.0%
Maximum Gainer	2228.0%	2547.0%	2452.0%	2852.0%	2432.0%	1892.0%	1807.0%	11483.0%	11483.0%
Maximum Loser	-82.0%	-53.0%	-67.0%	-100.0%	-83.0%	-100.0%	-78.0%	-100.0%	-100.0%
Annualized Average Gain	15.4%	14.6%	13.2%	12.0%	12.2%	11.7%	9.1%	6.7%	8.4%
Annualized Median Gain	12.1%	10.6%	9.8%	9.3%	8.2%	7.3%	6.0%	1.1%	3.1%

For detailed information about each predictability rank, please go to GuruFocus Research: What worked in the market from 1998-2008? Part I: Introduction of Predictability Rank

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Farmer Bros Co (Farmer Bros Co) Business Description

Industry

GURUFOCUS.COM » STOCK LIST » Consumer Defensive » Consumer Packaged Goods » Farmer Bros Co (NAS:FARM) » Definitions » Predictability Rank

Comparable Companies

Traded in Other Exchanges

FB1:Germany

Address

1912 Farmer Brothers Drive, Northlake, TX, USA, 76262

Website

https://www.farmerbros.com

Farmer Bros Co is engaged in manufacturing, wholesaling, and distributing coffee, tea, and culinary products to food-service establishments and retailers in the United States. The company's customers include restaurants, hotels, offices, casinos, convenience stores, healthcare facilities, and other food-service providers. The company's product categories consist of roast and ground coffee, frozen liquid coffee, flavoured and unflavored iced and hot teas, culinary products, spices, and other beverages including cappuccino, cocoa, granitas, and ready-to-drink iced coffee. The products are sold under the brands of Farmer Brothers, Artisan Collection by Farmer Brothers, Superior, Metropolitan, and China Mist.

Executives

David Pace	director
Brad Bollner	officer: Interim CFO	1912 FARMER BROTHERS DRIVE, NORTHLAKE TX 76262
Bradley Louis Radoff	director	2727 KIRBY DRIVE, UNIT 29L, HOUSTON TX 77098
Thomas E. Bauer	officer: Vice President, Head of DSD	1912 FARMER BROTHERS DRIVE, NORTHLAKE TX 76262
Moore John E. Iii	officer: Vice President, Head of Coffee	1912 FARMER BROTHERS DRIVE, NORTHLAKE TX 76262
Moragne Maurice S.j.	officer: Chief Sales Officer	1912 FARMER BROTHERS DRIVE, NORTHLAKE TX 76262
Family Foundation Radoff	other: See Footnote 1	2727 KIRBY DRIVE, UNIT 29L, HOUSTON TX 77098
Todd E Diener	other: See Footnote 1
Jcp Investment Management, Llc	other: See Footnote 1	1177 WEST LOOP SOUTH, SUITE 1320, HOUSTON TX 77027
Jcp Investment Partnership, Lp	other: See Footnote 1	1177 WEST LOOP SOUTH, SUITE 1320, HOUSTON TX 77027
Jcp Investment Partners, Lp	other: See Footnote 1	1177 WEST LOOP SOUTH, SUITE 1320, HOUSTON TX 77027
Jcp Investment Holdings, Llc	other: See Footnote 1	1177 WEST LOOP SOUTH, SUITE 1320, HOUSTON TX 77027
James C Pappas	other: See Footnote 1	1177 WEST LOOP SOUTH, SUITE 1320, HOUSTON TX 77027
22nw Gp, Inc.	10 percent owner	1455 NW LEARY WAY, SUITE 400, SEATTLE WA 98107
22nw Fund, Lp	10 percent owner	1455 NW LEARY WAY, SUITE 400, SEATTLE WA 98107