Sonic (SONC) Predictability Rank

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What is Sonic Predictability Rank?

Not Rated

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.

Sonic 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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Sonic (SONC) Business Description

Industry

GURUFOCUS.COM » STOCK LIST » Consumer Cyclical » Restaurants » Sonic Corp (NAS:SONC) » Definitions » Predictability Rank

Comparable Companies

Traded in Other Exchanges

N/A

Address

Website

http://www.sonicdrivein.com

Sonic Corp operates and franchises drive-in restaurants throughout the United States. The restaurants typically consist of a building that houses only a kitchen to go along with 16 to 24 parking spaces that have their own payment terminals, intercom speakers, and menu boards. Carhops serve customers in their cars. Many locations also have a drive-thru lane and patio seating as alternatives. Sonic franchises roughly 90% of its restaurants, and the royalty revenue the company earns on franchise sales contributes roughly a quarter of total company revenue. Company-operated stores provide the balance of total revenue. Sonic owns the property on which hundreds of its restaurants are located. For those properties that house franchised stores, franchisees lease from the company.

Executives

Steven A Davis	director	3776 SOUTH HIGH ST, COLUMBUS OH 43207
Lauren R Hobart	director	345 COURT STREET, CORAOPOLIS PA 15275
Tony Bartel	director	625 WESTPORT PARKWAY, GRAPEVINE TX 76051
Kathy L Taylor	director	C/O FREDERIC DORWART LAWYERS, 124 EAST FOURTH STREET, TULSA OK 74103
Pedro Claudia San	officer: President	300 JOHNNY BENCH DRIVE, OKLAHOMA CITY OK 73104
Kate S Lavelle	director	24089 3RD STREET, FAIRHOPE AL 36532
Federico F Pena	director	711 HIGH STREET, DES MOINES IA 50392-0300
J Larry Nichols	director	DEVON ENERGY CORP, 20 NORTH BROADWAY STE 1500, OKLAHOMA CITY OK 73102-8260
Southeastern Asset Management Inc/tn/	10 percent owner	6410 POPLAR AVENUE, SUITE 900, MEMPHIS TN 38119
Longleaf Partners Funds Trust	10 percent owner	C/O SOUTHEASTERN ASSET MANAGEMENT, 6410 POPLAR AVE, SUITE 900, MEMPHIS TN 38119
Todd Whitney Smith	officer: President and CMO	300 JOHNNY BENCH DRIVE, OKLAHOMA CITY OK 73104
Craig Jeffrey Miller	officer: Former Officer of Subsidiary	5008 HARTRIDGE WAY, GREENSBORO NC 27407
Robert M Rosenberg	director
Michael J Maples	director	2208 WINDSOR ROAD, AUSTIN TX 78703
Douglas N Benham	director