Leggett & Platt (Leggett & Platt) Predictability Rank

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What is Leggett & Platt 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.

Leggett & Platt 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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Leggett & Platt (Leggett & Platt) Business Description

Industry

GURUFOCUS.COM » STOCK LIST » Consumer Cyclical » Furnishings, Fixtures & Appliances » Leggett & Platt Inc (NYSE:LEG) » Definitions » Predictability Rank

Comparable Companies

Traded in Other Exchanges

LP1:Germany LP1:Germany L1EG34:Brazil

Address

No. 1 Leggett Road, Carthage, MO, USA, 64836

Website

https://www.leggett.com

Leggett & Platt Inc designs and produces engineered components and products found in most homes and automobiles. It operates its business through three segments namely Bedding Products, Specialized Products, and Furniture, Flooring and Textile Products. Serving a broad suite of customers around the world, Leggett & Platt's products include bedding components, automotive seat support and lumbar systems, specialty bedding foam and private label finished mattresses, components for home furniture and work furniture, flooring underlayment, adjustable beds, and various other products.

Executives

Ryan Michael Kleiboeker	officer: SVP-Chief Strategic Plan. Off.	NO.1 LEGGETT ROAD, CARTHAGE MO 64836
Phoebe A Wood	director	PO BOX 1080, LOUISVILLE KY 40201
Scott S Douglas	officer: SVP-Gen. Counsel and Secretary	NO 1 LEGGETT ROAD, CARTHAGE MO 64836
Karl G Glassman	director, officer: Executive Vice President	LEGGETT & PLATT, INCORPORATED, NO. 1 LEGGETT ROAD, CARTHAGE MO 64836
Angela Barbee	director	NO. 1 LEGGETT ROAD, CARTHAGE MO 64836
Benjamin Michael Burns	officer: SVP-Business Support Services	NO. 1 LEGGETT ROAD, CARTHAGE MO 64836
James Tyson Hagale	officer: SVP, Pres. - Bedding Products	NO. 1 LEGGETT ROAD, CARTHAGE MO 64836
Christina Ptasinski	officer: SVP - Chief HR Officer	NO. 1 LEGGETT ROAD, CARTHAGE MO 64836
J Mitchell Dolloff	director, officer: President and COO	NO.1 LEGGETT ROAD, CARTHAGE MO 64836
Steven K Henderson	officer: Executive Vice President	NO. 1 LEGGETT ROAD, CARTHAGE MO 64836
Tammy M Trent	officer: SVP - Chief Accounting Officer	NO. 1 LEGGETT ROAD, CARTHAGE MO 64836
Jeffrey L. Tate	officer: Executive Vice President - CFO	2211 H.H. DOW WAY, MIDLAND MI 48674
Susan R Mccoy	officer: SVP - Investor Relations	NO. 1 LEGGETT ROAD, CARTHAGE MO 64836
Judy C Odom	director	2140 MERRITT DRIVE, GARLAND TX 75401
Maryelizabeth R Campbell	director	NO. 1 LEGGETT ROAD, CARTHAGE MO 64836