EPSN (Epsilon Energy) Predictability Rank

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What is Epsilon Energy 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.

Epsilon Energy 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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Epsilon Energy Business Description

Industry

GURUFOCUS.COM » STOCK LIST » Energy » Oil & Gas » Epsilon Energy Ltd (NAS:EPSN) » Definitions » Predictability Rank

Comparable Companies

Traded in Other Exchanges

N/A

Address

500 Dallas Street, Suite 1250, Houston, TX, USA, 77002

Website

https://www.epsilonenergyltd.com

Epsilon Energy Ltd is engaged in the acquisition, development, gathering, and production of natural gas and oil reserves. The operating segments of the company include Upstream segment activities including acquisition, development, and production of natural gas reserves on properties within the United States. The Gas Gathering segment partners with two other companies to operate a natural gas gathering system, and the corporate segment activities include corporate listing and governance functions of the corporation. The company generates revenue from the sale of crude oil and natural gas.

Executives

Andrew Williamson	officer: Chief Financial Officer	16945 NORTHCHASE DR., SUITE 1610, HOUSTON TX 77060
Jason Stabell	director, officer: Chief Executive Officer	16945 NORTHCHASE DR., SUITE 1610, HOUSTON TX 77060
Solas Capital Management, Llc	10 percent owner	1063 POST ROAD, 2ND FLOOR, DARIEN CT 06820
Jason Stankowski	director	3160 COLLEGE AVE, SUITE 203, BERKELEY CA 94705
Nicola L Maddox	director	6331 CONCHO BAY DR, HOUSTON TX 77041
John Lovoi	director	3505 W SAM HOUSTON PKWY NORTH, SUITE 400, HOUSTON TX 77043
David W Winn	director	5217 HOLLY ST., BELLAIRE TX 77401
Tucker Golden Frederick	10 percent owner	C/O SOLAS CAPITAL MANAGEMENT, LLC, 1063 POST ROAD, 2ND FLOOR, DARIEN CT 06820
Bruce Lane Bond	officer: Chief Financial Officer	6206 CORAL RIDGE RD., HOUSTON TX 77069
Stephen Finlayson	director	3621 TIMBERSIDE CIRCLE DR., HOUSTON TX 77025
Ryan Roebuck	director	16701 GREENSPOINT PARK DR., SUITE 195, HOUSTON TX 77060
Oakview Capital Management, L.p.	10 percent owner	3879 MAPLE AVE., SUITE 300, DALLAS TX 75219
Azvalor Asset Management Sgiic Sa	10 percent owner	PASEO DE LA CASTELLANA 110, MADRID U3 28046
Matthew Dougherty	director	180 N. STETSON AVE, SUITE 5500, CHICAGO IL 60601
Adrian Montgomery	director	16701 GREENSPOINT PARK DRIVE, SUITE 195, HOUSTON TX 77060