Education Management (Education Management) Predictability Rank

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What is Education Management Predictability Rank?

Not Rated

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.

Education Management 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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Education Management (Education Management) Business Description

Industry

GURUFOCUS.COM » STOCK LIST » Consumer Defensive » Education » Education Management Corp (OTCPK:EDMCQ) » Definitions » Predictability Rank

Comparable Companies

Traded in Other Exchanges

N/A

Address

210 Sixth Avenue, 33rd Floor, Pittsburgh, PA, USA, 15222

Website

http://www.edmc.edu

Education Management Corp provides post-secondary education in North America. It offers academic programs to students through campus-based and online instruction, or through a combination of both. The company operates in four segments including The Art Institutes; Argosy University; Brown Mackie Colleges and South University. The Art Institutes focus on applied arts in creative professions such as graphic design, media arts, and animation, culinary arts. Brown Mackie Colleges offer flexible Associate's and non-degree diploma programs that enable students to develop skills for entry-level positions in high-demand vocational specialties. South University offers academic programs in health profession and business disciplines, health sciences, nursing, criminal justice, psychology, and IT.

Executives

Carol Dibattiste	officer: See Remarks	1155 W FREDERICK SMALL RD, JUPITER FL 33458
Mick J Beekhuizen	officer: See Remarks	C/O GOLDMAN, SACHS & CO., 85 BROAD STREET, NEW YORK NY 10004
Edward H West	director, officer: See Remarks	3250 BRIARPARK DR, SUITE 400, HOUSTON TX 77042
Citigroup Inc	10 percent owner	388 GREENWICH STREET, NEW YORK NY 10013
James Hobby	officer: See Remarks	400 N ASHLEY DRIVE SUITE 2800 TAMPA FL 33602
John Robert Kline	officer: See Remarks	PERDOCEO EDUCATION CORPORATION, 1750 E. GOLF ROAD, SCHAUMBURG IL 60173
Jonathan M Nelson	10 percent owner	C/O PROVIDENCE EQUITY PARTNERS, L.L.C., 50 KENNEDY PLAZA, 18TH FL, PROVIDENCE RI 02903
Robert G. Hrivnak	officer: See Remarks	C/O ORION ENGINEERED CARBONS S.A., 4501 MAGNOLIA COVE DRIVE, SUITE 106, HOUSTON TX 77345
Jeffrey T Leeds	director	660 MADISON AVE 15TH FL, NEW YORK NY 10021
Samuel C Cowley	director	2200 SOUTH 75TH AVENUE, PHOENIX AZ 85043
Brian A. Napack	director	C/O JOHN WILEY & SONS, INC., 111 RIVER STREET, HOBOKEN NJ 07030
Providence Equity Gp Iv L.p.	10 percent owner	50 KENNEDY PLAZA, PROVIDENCE RI 02903
Providence Equity Partners Iv, L.l.c.	10 percent owner	50 KENNEDY PLAZA, PROVIDENCE RI 02903
Providence Equity Partners Iv Lp	10 percent owner
William R Johnson	director	UNITED PARCEL SERVICE, INC., 55 GLENLAKE PARKWAY, NE, ATLANTA GA 30328

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