PC Connection (PC Connection) Predictability Rank

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What is PC Connection 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.

PC Connection 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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PC Connection (PC Connection) Business Description

Industry

GURUFOCUS.COM » STOCK LIST » Technology » Hardware » PC Connection Inc (NAS:CNXN) » Definitions » Predictability Rank

Comparable Companies

Traded in Other Exchanges

PCC:Germany

Address

730 Milford Road, Merrimack, NH, USA, 03054-4631

Website

https://www.connection.com

PC Connection Inc is a provider of information technology solutions. It provides products such as computer systems, software and peripheral equipment, networking communications, and other products and accessories that company purchase from manufacturers and distributors. The company also offers services involving design, configuration, and implementation of IT solutions. It conducts business operations through three business segments namely Business Solutions, Enterprise Solutions, and Public Sector Solutions. The company generates maximum revenue Enterprise Solutions segment.

Executives

Thomas C Baker	officer: Sr. VP, CFO & Treasurer	730 MILFORD ROAD, MERRIMACK NH 03054
Negrini David Beffa	director, officer: VP, Corporate Communications	PC CONNECTION, 730 MILFORD ROAD, MERRIMACK NH 03054
Timothy J Mcgrath	officer: President & CEO	PC CONNECTION, 730 MILFORD ROAD, MERRIMACK NH 03054
Jack L Ferguson	officer: Treasurer & Interim CFO	PC CONNECTION, INC., 730 MILFORD ROAD, MERRIMACK NH 03054
Barbara Duckett	director	730 MILFORD ROAD, MERRIMACK NH 03054
Patricia Gallup	director, 10 percent owner, officer: Chairman & Chief Admin Officer	730 MILFORD ROAD, MERRIMACK NH 03054
Pc Connection Inc	10 percent owner	ROUTE 101A, 730 MILFORD RD, MERRIMACK NH 03054
Comack Trust	10 percent owner	450 MARLBORO STREET, KEENE NH 03431
Jay E Bothwick	director	C/O PC CONENCTION, 730 MILFORD ROAD, MERRIMACK NH 03054
Gary Kinyon	director	730 MILFORD ROAD, MERRIMACK NH 03054
Estate Of David Mclellan Hall	10 percent owner	C/O PC CONNECTION, 730 MILFORD ROAD, MERRIMACK NH 03054
Joseph A Baute	director	730 MILFORD ROAD, MERRIMACK NH 03054
Stephen P Sarno	officer: Sr. VP, Treasurer & CFO	C/O SAPIENT CORPORATION, 25 FIRST STREET, CAMBRIDGE MA 02141
David Hall	director, 10 percent owner, officer: Vice Chairman	730 MILFORD ROAD, MERRIMACK NH 03054
Glynn W Schulze	officer: Interim CFO and VP	C/O PC CONNECTION, INC., 730 MILFORD ROAD, MERRIMACK NH 03054