Advanced Drainage Systems (Advanced Drainage Systems) Predictability Rank

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What is Advanced Drainage Systems 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.

Advanced Drainage Systems 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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Advanced Drainage Systems (Advanced Drainage Systems) Business Description

Industry

GURUFOCUS.COM » STOCK LIST » Industrials » Construction » Advanced Drainage Systems Inc (NYSE:WMS) » Definitions » Predictability Rank

Comparable Companies

Traded in Other Exchanges

6DA:Germany

Address

4640 Trueman Boulevard, Hilliard, OH, USA, 43026

Website

https://www.adspipe.com

Advanced Drainage Systems Inc is engaged in designing, manufacturing, and marketing thermoplastic corrugated pipe and related water management products in North and South America, and Europe. The company's operating segment includes Pipe; Infiltrator; International and Allied Products and Other. It generates maximum revenue from the Pipe segment. The company serves Agriculture; Aviation and Military; Mining; Residential; Transportation; Healthcare and Education and others.

Executives

Brian W. King	officer: Executive Vice President	C/O ADVANCED DRAINAGE SYSTEMS, INC., 4640 TRUEMAN BOULEVARD, HILLIARD OH 43026
Michael G. Huebert	officer: Senior Vice President	C/O ADVANCED DRAINAGE SYSTEMS, INC., 4640 TRUEMAN BOULEVARD, HILLIARD OH 43026
Tim A Makowski	officer: SEE REMARKS (A)	C/O ADVANCED DRAINAGE SYSTEMS, INC., 4640 TRUEMAN BOULEVARD, HILLIARD OH 43026
Robert M Klein	officer: EVP, Sales	C/O ADVANCED DRAINAGE SYSTEMS, INC., 4640 TRUEMAN BOULEVARD, HILLARD OH 43026
Anil Seetharam	director	200 CLARENDON STREET, FLOOR 35, BOSTON MA 02116
Ross M Jones	director	ONE BOSTON PLACE, 33RD FL, BOSTON MA 02108
Alexander R Fischer	director	C/O ADVANCED DRAINAGE SYSTEMS, INC., 4640 TRUEMAN BOULEVARD, HILLARD OH 43026
Darin S. Harvey	officer: EVP, Supply Chain & Logistics	C/O ADVANCED DRAINAGE SYSTEMS, INC., 4640 TRUEMAN BOULEVARD, HILLIARD OH 43026
Craig J. Taylor	officer: Executive Vice President	C/O ADVANCED DRAINAGE SYSTEMS, INC., 4640 TRUEMAN BOULEVARD, HILLIARD OH 43026
Perez De La Mesa Manuel J	director
Kevin C Talley	officer: EVP and CAO	C/O ADVANCED DRAINAGE SYSTEMS INC, 4640 TRUEMAN BOULEVARD, HILLIARD OH 43026
Kelly S. Gast	director	C/O ADVANCED DRAINAGE SYSTEMS, INC., 4640 TRUEMAN BLVD., HILLIARD OH 43026
Berkshire Partners Holdings Llc	10 percent owner	200 CLARENDON STREET, 35TH FLOOR, BOSTON MA 02116
Berkshire Fund Ix, L.p.	10 percent owner	C/O NINTH BERKSHIRE ASSOCIATES LLC, 200 CLARENDON STREET, BOSTON MA 02116
Michael B. Coleman	director	C/O ADVANCED DRAINAGE SYSTEMS, INC., 4640 TRUEMAN BLVD., HILLIARD OH 43026