RGC Resources (RGC Resources) Predictability Rank

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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.

RGC Resources 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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RGC Resources (RGC Resources) Business Description

Industry

GURUFOCUS.COM » STOCK LIST » Utilities » Utilities - Regulated » RGC Resources Inc (NAS:RGCO) » Definitions » Predictability Rank

Comparable Companies

Traded in Other Exchanges

N/A

Address

519 Kimball Avenue North East, Roanoke, VA, USA, 24016

Website

https://www.rgcresources.com

RGC Resources Inc is involved in the business of distribution and sale of natural gas to residential, commercial, and industrial customers within its service territory in Roanoke, Virginia and its surrounding localities as well as it also provides certain non-regulated services. The company relies on multiple interstate pipelines to transport natural gas. The company operates in three segments: Gas Utility, which is the key revenue generator; Investment in Affiliates this segment reflects the income generated through the activities of the Company's investment in MVP and Southgate projects and Parent & Other include the unregulated activities of the Company as well as certain corporate eliminations.

Executives

Christen Brooke Miles	officer: VP, Human Resources	P.O. BOX 13007, ROANOKE VA 24030
Lawrence T. Oliver	officer: VP, Interim CFO, Sec. & Treas.	P. O. BOX 13007, ROANOKE VA 24030
Robert B Johnston	director
Jason A. Field	officer: VP, Treasurer & CFO	P. O. BOX 13007, ROANOKE VA 24030
Williamson John B Iii	director, officer: Chairman, President & CEO	PO BOX 13007, ROANOKE VA 24030
Paul W Nester	officer: VP, Treasurer & CFO	P.O. BOX 13007, ROANOKE VA 24030
Anita G Zucker	10 percent owner	4838 JENKINS AVE, N CHARLESTON SC 29405
Elizabeth A Mcclanahan	director	P. O. BOX 13007, ROANOKE VA 24030
Jacqueline L. Archer	director	P. O. BOX 13007, ROANOKE VA 24030
Burton Randall P. Ii	other: Former VP, CFO, Sec. & Treas.	P. O. BOX 13007, ROANOKE VA 24030
Shockley C James Jr	officer: VP & COO	P.O. BOX 13007, ROANOKE VA 24030
Wells Robert L Ii	officer: VP, CIO, Asst. Sec. & Treas.	P.O. BOX 13007, ROANOKE VA 24030
Nancy H Agee	director	PO BOX 13007, ROANOKE VA 24030
D Orazio John S	officer: VP & COO Roanoke Gas Co (sub)	PO BOX 13007, ROANOKE VA 24030
Smoot Raymond D Jr	director	P. O. BOX 13007, ROANOKE VA 24030