TopBuild (TopBuild) Predictability Rank

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What is TopBuild 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.

TopBuild 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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TopBuild (TopBuild) Business Description

Industry

GURUFOCUS.COM » STOCK LIST » Industrials » Construction » TopBuild Corp (NYSE:BLD) » Definitions » Predictability Rank

Comparable Companies

Traded in Other Exchanges

28T:Germany

Address

475 North Williamson Boulevard, Daytona Beach, FL, USA, 32114

Website

https://www.topbuild.com

TopBuild Corp is an installer and distributor of insulation products. Its operating segments involve the Installation and Specialty Distribution segment. The installation segment provides insulation installation services nationwide through contractor services business. Speciality Distribution segment distributes building and mechanical insulation, insulation accessories and other building product materials for the residential, commercial, and industrial end markets. The majority of revenue is earned from the installation segment. Its main customers are contractors. Other products include gutters, after-paint, garage doors, fireplaces, and fireproofing and stopping. TopBuild operates primarily in the United States.

Executives

Robert M Buck	officer: President & COO	260 JIMMY ANN DRIVE, DAYTONA BEACH FL 32114
Luis Francisco Machado	officer: VP, Gen. Counsel, Corp Sec.	1142 W. BEARDSLEY AVENUE, ELKHART IN 46514
Steven P Raia	officer: President, TruTeam Operations	475 NORTH WILLIAMSON BLVD, DAYTONA BEACH FL 32114
Robert Jeffrey Franklin	officer: President, Service Partners	475 NORTH WILLIAMSON BLVD, DAYTONA BEACH FL 32114
Tina Donikowski	director	1625 SHARP POINT DRIVE, FORT COLLINS CO 80525
Joey M Viselli	officer: Vice President and COO	475 NORTH WILLIAMSON BLVD, DAYTONA BEACH FL 32114
Deirdre Drake	director	8410 W. BRYN MAWR AVE, CHICAGO IL 60631
Carrie Gamble Wood	officer: Chief Accounting Officer	475 NORTH WILLIAMSON BLVD, DAYTONA BEACH FL 32114
John S. Peterson	officer: VP & CFO	260 JIMMY ANN DRIVE, DAYTONA BEACH FL 32114
Ernesto Iii Bautista	director	575 N DAIRY ASHFORD, SUITE 300, HOUSTON TX 77079
Carl T Camden	director	999 WEST BIG BEAVER ROAD, TROY MI 48084
Alec C Covington	director	C/O NASH FINCH COMPANY, 7600 FRANCE AVENUE SOUTH, MINNEAPOLIS MN 55435
Nancy M Taylor	director	TREDEGAR CORP, 1100 BOULDERS PARKWAY, RICHMOND VA 23219
Mark A Petrarca	director	A. O. SMITH CORPORATION, 11270 WEST PARK PLACE, MILWAUKEE WI 53224
Robert M Kuhns	officer: Vice President, Controller	C/O TOPBUILD CORP., 475 NORTH WILLIAMSON BLVD., DAYTONA BEACH FL 32114