What is Earthstone Energy Predictability Rank?
1 (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.
Earthstone Energy 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
Earthstone Energy (Earthstone Energy) Business Description
Traded in Other Exchanges
N/A
Address
1400 Woodloch Forest Drive, Suite 300, The Woodlands, TX, USA, 77380
Earthstone Energy Inc is an independent oil and natural gas development and production company. The company focuses on the acquisition, development, exploration, and production of onshore, crude oil and natural gas reserves. It is also active in corporate mergers and the acquisition of oil and natural gas properties. The company's reserve portfolio consists of assets in the Midland Basin of West Texas, and the Eagle Ford Trend of South Texas. Its operations are all in the upstream segment of the oil and natural gas industry and are conducted onshore in the United States.
Executives
| Tony Oviedo |
officer: EVP, PAO |
909 FANNIN, SUITE 1850, HOUSTON TX 77010 |
| Mark Jr Lumpkin |
officer: EVP and CFO |
1400 WOODLOCH FOREST DRIVE, SUITE 300, THE WOODLANDS TX 77380 |
| Frank Alan Lodzinski |
director, officer: CEO |
1400 WOODLOCH FOREST DRIVE, SUITE 300, THE WOODLANDS TX 77380 |
| Wp Energy Chisholm Holdings, L.p. |
10 percent owner |
450 LEXINGTON AVENUE, NEW YORK NY 10017 |
| Warburg Pincus Private Equity (e&p) Xi-a, L.p. |
10 percent owner |
C/O WARBURG PINCUS LLC, 450 LEXINGTON AVE, NEW YORK NY 10017 |
| Warburg Pincus (e&p) Xii, L.p. |
10 percent owner |
450 LEXINGTON AVENUE, NEW YORK NY 10017 |
| Warburg Pincus Partners Ii (us), L.p. |
10 percent owner |
450 LEXINGTON AVENUE, C/O WARBURG PINCUS LLC, NEW YORK NY 10017 |
| Robert John Anderson |
officer: President |
1400 WOODLOCH FOREST DRIVE, SUITE 300, THE WOODLANDS TX 77380 |
| Cypress Investments, Llc |
director |
34 S. WYNDEN DR., SUITE 300, HOUSTON TX 77056 |
| Post Oak Energy Holdings, Llc |
director |
34 S. WYNDEN DR, STE 300, HOUSTON TX 77056 |
| Jay Frederick Joliat |
director |
36801 WOODWARD AVE., SUITE 301, BIRMINGHAM MI 48009 |
| Post Oak Energy Capital, Lp |
director |
34 S. WYNDEN DR, STE 300, HOUSTON TX 77056 |
| Swanson Douglas E Jr |
director |
1100 LOUISIANA, SUITE 4900, HOUSTON TX 77002 |
| Steven C. Collins |
officer: EVP and COO |
1400 WOODLOCH FOREST DRIVE, SUITE 300, THE WOODLANDS TX 77380 |
| Encap Energy Capital Fund Xi, L.p. |
director, 10 percent owner |
9651 KATY FREEWAY, SUITE 600, HOUSTON TX 77024 |
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