Liquidity Services (Liquidity Services) Predictability Rank

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What is Liquidity Services 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.

Liquidity Services 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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Liquidity Services (Liquidity Services) Business Description

Industry

GURUFOCUS.COM » STOCK LIST » Consumer Cyclical » Retail - Cyclical » Liquidity Services Inc (NAS:LQDT) » Definitions » Predictability Rank

Comparable Companies

Traded in Other Exchanges

L1S:Germany

Address

6931 Arlington Road, Suite 460, Bethesda, MD, USA, 20814

Website

https://www.liquidityservices.com

Liquidity Services Inc is an online auction marketplace. It manages and sells inventory and equipment for business and government clients by operating a network of e-commerce marketplaces that enable buyers and sellers to transact in an efficient, automated environment offering across different product categories. The company has four reportable segments: GovDeals, Capital Assets Group (CAG), Retail Supply Chain Group (RSCG), and Machinio. It generates majority of its revenue from Retail Supply Chain Group (RSCG) segment which consists of marketplaces that enable corporations located in the United States and Canada to sell excess, returned, and overstocked consumer goods. Geographically, a substantial portion the company's revenue is generated from its business in United States.

Executives

Steven Weiskircher	officer: SVP & CTO	6931 ARLINGTON ROAD, SUITE 200, BETHESDA MD 20814
Angrick William P Iii	director, 10 percent owner, officer: Chairman of the Board and CEO	C/O LIQUIDITY SERVICES, INC., 1920 L STREET, N.W., 6TH FLOOR, WASHINGTON DC 20036
Novelette Murray	officer: Chief Human Resources Officer	6931 ARLINGTON ROAD SUITE 200, BETHESDA MD 20814
John Daunt	officer: EVP & COO	C/O 6931 ARLINGTON ROAD, SUITE 200, BETHESDA MD 20814
George H Ellis	director	2911 TURTLE CREEK BOULEVARD, SUITE 1100, DALLAS TX 75219
Jorge Celaya	officer: EVP & Chief Financial Officer	1920 L STREET NW, 6TH FLOOR, WASHINGTON DC 20036
Katharin S Dyer	director	6931 ARLINGTON ROAD, SUITE 200, BETHESDA MD 20814
Thierno Amath Fall	director	6931 ARLINGTON ROAD, SUITE 200, BETHESDA MD 20814
Jaime Mateus-tique	director, 10 percent owner, officer: President and Chief Op Officer	1920 L STREET, N.W., 6TH FLOOR, WASHINGTON DC 20036
Mark A Shaffer	officer: VP, Gen. Counsel & Secretary	C/O LIQUIDITY SERVICES, INC., 1920 L STREET, N.W., 6TH FLOOR, WASHINGTON DC 20036
Edward Kolodzieski	director	C/O LIQUIDITY SERVICES, INC., 1920 L STREET, N.W., 6TH FLOOR, WASHINGTON DC 20036
Nicholas Rozdilsky	officer: Vice President, Marketing	C/O 6931 ARLINGTON ROAD, SUITE 200, BETHESDA MD 20814
Beatriz V Infante	director	4 TECHNOLOGY PARK DRIVE, SONUS NETWORKS, INC., WESTFORD MA 01886
Sam Guzman	officer: VP & Chief Accounting Officer	C/O 6931 ARLINGTON ROAD, SUITE 200, BETHESDA MD 20814
Michael Lutz	officer: VP, Human Resources	C/O 6931 ARLINGTON ROAD, BETHESDA MD 20814