What is Heritage Commerce Predictability Rank?
1.5 (5)
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.
Heritage Commerce 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
Also read:
Part II: What worked in the market from 1998-2008? Part II: Role of Valuations
Part III: Intrinsic Value, Discounted Cash Flow and Margin of Safety
Heritage Commerce (Heritage Commerce) Business Description
Traded in Other Exchanges
Address
224 Airport Parkway, San Jose, CA, USA, 95110
Heritage Commerce Corp operates as a bank holding company. The company, through its subsidiary, offers commercial banking services to small and medium-sized businesses and their owners, managers, and employees. It operates through two segments, namely Banking and Factoring. The bank generates its revenue from the Banking segment.
Executives
| Susan Svensson Just |
officer: EVP/Chief Credit Officer |
224 AIRPORT PARKWAY, SAN JOSE CA 95110 |
| Jack W Conner |
director |
HERITAGE COMMERCE CORP, 150 ALMADEN BLVD., SAN JOSE CA 95113 |
| Jason Philip Dinapoli |
director |
1875 CENTURY PARK EAST, SUITE 1400, LOS ANGELES CA 90067 |
| Robert Moles |
director |
HERITAGE COMMERCE CORP, 150 ALMADEN BLVD., SAN JOSE CA 95113 |
| Kamran F Husain |
director |
3005 TASMAN DRIVE, SANTA CLARA CA 95054 |
| Stephen G. Heitel |
director |
150 ALMADEN BOULEVARD, SAN JOSE CA 95113 |
| Lawrence D Mcgovern |
officer: Chief Financial Officer |
C/O HERITAGE COMMERCE CORP, 150 ALMADEN BLVD, SAN JOSE CA 95113 |
| Walter Theodore Kaczmarek |
director, officer: CEO and President |
HERITAGE COMMERCE CORP, 150 ALMADEN BLVD., SAN JOSE CA 95113 |
| Peng Coonley Janice Yuli |
officer: EVP/Chief People and Diversity |
224 AIRPORT BLVD, SAN JOSE CA 92692 |
| Deborah Reuter |
officer: EVP/CRO/Corporate Secretary |
224 AIRPORT PARKWAY, SAN JOSE CA 95110 |
| Michael Eugene Benito |
officer: EVP/Business Banking Division |
150 ALMADNE BLVD., SAN JOSE CA 95113 |
| Keith Wilton |
officer: EVP/COO |
150 ALMADEN BLVD., SAN JOSE CA 95113 |
| Steven L. Hallgrimson |
director |
150 ALMADEN BLVD., SAN JOSE CA 95113 |
| Jones Robertson Clay Jr |
officer: EVP |
150 ALMADEN BOULEVARD, SAN JOSE CA 95113 |
| Bruce H Cabral |
director |
150 ALMADEN BOULEVARD, SAN JOSE CA 95113 |
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