Dril-Quip (Dril-Quip) Predictability Rank

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What is Dril-Quip 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.

Dril-Quip 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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Dril-Quip (Dril-Quip) Business Description

Industry

GURUFOCUS.COM » STOCK LIST » Energy » Oil & Gas » Dril-Quip Inc (NYSE:DRQ) » Definitions » Predictability Rank

Comparable Companies

Traded in Other Exchanges

DQU:Germany

Address

2050 West Sam Houston Parkway S., Suite 1100, Houston, TX, USA, 77042

Website

https://www.dril-quip.com

Dril-Quip Inc. designs, manufactures, sells and services engineered drilling and production equipment for both offshore and onshore applications. The Company's revenues are generated from three sources, Product revenues are derived from the sale of drilling and production equipment. Service revenues are earned when the Company provides technical advisory assistance and rework and reconditioning services. Leasing revenues are derived from rental tools used during the installation and retrieval of the Company's products. The Company's operations are organized into three geographic segments, Western Hemisphere (including North and South America), Eastern Hemisphere (including Europe and Africa) and Asia-Pacific (including the Pacific Rim, Southeast Asia, Australia, India and the Middle East).

Executives

Terence Bartlett Jupp	director	6401 N. ELDRIDGE PARKWAY, HOUSTON TX 77041
James C. Webster	officer: VP - Gen Counsel & Secretary	13550 HEMPSTEAD HIGHWAY, HOUSTON TX 77040
Jeffrey J. Bird	officer: Vice President and CFO	10260 WESTHEIMER RD., HOUSTON TX 77042
Kyle Mcclure	officer: Vice President and CFO	10260 WESTHEIMER RD, SUITE 700, HOUSTON TX 77042
Donald M Underwood	officer: VP - Subsea Products	6401 NORTH ELDRIDGE PKWY, HOUSTON TX 77041
Carri A. Lockhart	director	6401 NORTH ELDRIDGE PKWY, HOUSTON TX 77041
A P Shukis	director	C/O CORPORATE STRATEGIES INC, 1170 ST JAMES PLACE SUITE 115, HOUSTON TX 77056
Blake T. Deberry	director, officer: President and CEO	13550 HEMPSTEAD HIGHWAY, HOUSTON TX 77040
Raj Kumar	officer: VP-Finance & Chief Acct. Off.	6401 N. ELDRIDGE PARKWAY, HOUSTON TX 77041
Darryl Keith Willis	director	2001 KIRBY DRIVE, SUITE 200, HOUSTON TX 77019
John Lovoi	director	3505 W SAM HOUSTON PKWY NORTH, SUITE 400, HOUSTON TX 77043
Amy B Schwetz	director	701 MARKET STREET, ST. LOUIS MO 63101
James A. Gariepy	officer: SR V.P. and COO	13550 HEMPSTEAD HIGHWAY, HOUSTON TX 77040
Jerry M Brooks	officer: Chief Financial Officer
Robertson L H Dick	director	39 LAKESIDE DRIVE, STAR HARBOR, MALAKOFF TX 75148