Ten-Bagger Investments


I talked about the 10-bagger previously. Basically having your investment increase 10-fold. I used to think it was very difficult but actually, all you need is 26% compounded return every year. ORLY did it. Some others will.

Here's my Checklist:

1. An attractive starting valuation. The stock should not be too big at the moment. If the market cap is already $300bn, you are expecting it to go to $3 trillion. A bit challenging don't you think? On the other hand, a stock that is "only" worth $500m now, COULD get to $5bn, or from $5bn to $50bn, if it executes correctly.

2. Long growth runway (ie you can see the revenue growing substantially because the market size is huge)

3. A defensible competitive advantage (ie a moat. You can assess this via common ratios like ROE and ROIC but most of these high growth companies tend to lack earnings. One way to overcome this is to look a their Gross Profitability Ratio)

4. A highly scalable business (eg, to grow revenues by 100%, it does not have to double capex, or spend correspondingly more in expenses. It will typically have a very high ROIC and very asset light. Think about it, its very difficult for asset heavy investments to fly)

5. A valuation re-rating (for eg. it might be trading at 20x PE now, but as the market wakes up to its high growh potential, decides to price it at 40x PE.)

Are you ready to power up your investing?

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