LKQ (LKQ) Predictability Rank

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What is LKQ 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.

LKQ 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

LKQ Predictability Rank Related Terms

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LKQ (LKQ) Business Description

Industry

GURUFOCUS.COM » STOCK LIST » Consumer Cyclical » Vehicles & Parts » LKQ Corp (NAS:LKQ) » Definitions » Predictability Rank

Comparable Companies

Traded in Other Exchanges

LKQ1:Germany LKQ1:Germany

Address

500 West Madison Street, Suite 2800, Chicago, IL, USA, 60661

Website

https://www.lkqcorp.com

LKQ is a Global distributor of non-OEM automotive parts. Initially formed in 1998 as a consolidator of auto salvage operations in the United States, it has since greatly expanded its scope to include distribution of new mechanical and collision parts, specialty auto equipment, and remanufactured and recycled parts in both Europe and North America. It still maintains its auto salvage business and owns over 70 LKQ pick-your-part junkyards. Separate from the self-service business, LKQ purchases over 300,000 salvage automobiles annually that are used to extract parts for resale. Globally, the company maintains approximately 1,700 facilities.

Executives

Blythe J Mcgarvie	director	HANNAFORD BROS CO, 145 PLEASANT HILL RD, SCARBOROUGH ME 04074
Varun Laroyia	officer: Executive VP and CFO	500 WEST MADISON STREET, SUITE 2800, CHICAGO IL 60661
Dominick P Zarcone	director, officer: President and CEO	C/O LKQ CORPORATION, 500 W. MADISON STREET, SUITE 2800, CHICAGO IL 60661
Meg Divitto	director	500 WEST MADISON STREET, SUITE 2800, CHICAGO IL 60661
Xavier Urbain	director	500 W. MADISON STREET, SUITE 2800, CHICAGO IL 60661
Patrick Berard	director	500 W. MADISON STREET, SUITE 2800, CHICAGO IL 60661
Robert M. Hanser	director	500 W. MADISON STREET, SUITE 2800, CHICAGO IL 60661
John W Mendel	director	C/O TRUECAR, INC., 120 BROADWAY, SUITE 200, SANTA MONICA CA 90401
Valueact Capital Master Fund, L.p.	director, other: See Remarks	ONE LETTERMAN DRIVE, BUILDING D, 4TH FLOOR, SAN FRANCISCO CA 94129
Rick Galloway	officer: SVP and CFO	500 WEST MADISON STREET, SUITE 2800, CHICAGO IL 60661
Joseph M Holsten	director, officer: President and CEO
Genevieve L Dombrowski	officer: SVP -- Human Resources	500 WEST MADISON STREET, SUITE 2800, CHICAGO IL 60661
Valueact Holdings, L.p.	director, other: See Remarks	ONE LETTERMAN DRIVE, BUILDING D, 4TH FLOOR, SAN FRANCISCO CA 94129
Valueact Capital Management, L.p.	director, other: See Remarks	ONE LETTERMAN DRIVE, BUILDING D, 4TH FLOOR, SAN FRANCISCO CA 94129
Valueact Capital Management, Llc	director, other: See Remarks	ONE LETTERMAN DRIVE, BUILDING D, 4TH FLOOR, SAN FRANCISCO CA 94129