Link to the book on Amazon:
This book is presenting for us what is the typical characteristic of a 100-bagger stock, by looking back at the history of the stocks that has already become 100 baggers. It identifies how they looked like in the beginning and what they had in common before they began their growth to become 100-baggers. The author tells us that there are no clear method or formula for identifying 100-bagger stocks, but there are some things they have in common that you can use in your search for these types of stocks.
The book is easy to read and quite useful, especially for the beginner investor.
Here are my notes in no particular order:
-Typical characteristics of 100 bagger stocks: Keywords: New methods, new materials, new products, good for mankind.
-Focus on quality and not price. Compounding is what counts the most, not multiple expansion.
-Coffee can portfolio can be a good 100 bagger strategy. Pick 10 stocks that you intend and will keep for at least 10 years. Why? 100-bagges need TIME to become 100-baggers. You need to be patient and hold on and not be tempted to sell. In average it takes the stock 25 years to become a 100 bagger.
-Buy right and hold on for a very long time.
Typical attributes of a 100 bagger stock:
-Huge EPS growth + P/E expansion makes the 100 bagger. Growth is the keyword.
-Beaten down stocks, forgotten stocks that returns to profitability can also become 100-baggers.
-Insider ownership! Most 100-baggers had insider ownership. Skin in the game. Management interests aligned with investors.
-Small size. Smaller is better. Because the potential for growth is bigger. The law of large numbers dictates that a stock like Apple or Google cannot become 100 baggers from their current size. At least that is highly unlikely.
-High quality business+management. Management very important for small companies. More so than large companies. Management should be good capital allocators. Opportunistic share buybacks to increase returns to shareholders.
-Longevity in quality and growth
-Should preferably be bought at a favourable price, because it will take shorter time to reach 100 bagger.
The typical 100 bagger stock in the paper “Motilal Oswal 100x”
-Median market cap 500 mill
-Median sales at beginning 170 mill
-Price to sales ratio of 3
-Most did not look cheap based on past results.
-You must look forward to find 100 baggers. You will probably not find 100 baggers by looking at the past history. Because at that time it would already be obvious for other investors that this is a high growth, high quality company and it would already be priced accordingly
-Companies with national and international markets. Because you want a product and service that can be used worldwide for maximum growth
-Rising Return on equity YoY.
-Explosive sales growth
-Preferably in an industry with headwinds.
-Sales and subscribers growth can make up for EPS growth. Netflix, Amazon and other companies that sacrifice profit in the present to take market shares and get the profit in the future comes to mind. Sometimes you need to look beyond the reported earnings.
-Netting a 100-bagger takes vision and tenacity and often a conviction in an idea that is not yet obvious in the financials
-Better with 20% growth and a 20 P/E, than 10% growth and 10 p/e. This idea is similar to Peter Lynch idea. The power of compounding makes it so that over long term the former is to prefer than the latter.
-ROE is typically above 20% for 100-baggers
-Sales growth at least 10%
-At least 10% insider ownership. 10-20% is ideal.
-Look for companies that has 20%+ ROE for the past 5 years.
-Bet big on your best ideas.
-You can find 100-baggers in all kind of industries
-Look for managers that think and act long term
-Does the company have a product or service that adds value to the costumer?
-Look for companies with the highest gross margin relative to competitors.
-Don’t compare yourself to the SP 500. Take the long term view with 100 baggers. Underperformance for several years are normal.
-Ignore the “market”, FED etc.. just focus on picking the best stocks regardless of current macro conditions. Because the macro is highly unpredictable.
-Read conference calls with the management to judge them. Don’t listen, you might get swayed by their charisma and tone of voice.
-Read several quarterly reports consecutively to see if the management is consistent with their words and actions.
-Are questions in the conference calls ever evaded? That is a warning sign.
-Best protection against freud: High insider ownership. Beware of Chinese companies. Still freud risk even with high insider ownership.
-You need to understand how the company makes money
-Avoid the hot sectors like Biotech – Rife with freud’s.
Social media – Cloud computing etc..
-The best ideas are often the simplest.
-Find ideas that is not obvious from the numbers. Someone knows the story. Find them, or do investigation yourself.
-Invest in stocks with solid balance sheets that can survive a crisis.
-You will NOT find many 100-baggers in the deep value segment. Focus on quality first, cheapness second.
-A low multiple on the 100-bagger stock is preferred if possible. A PEG-ratio below 1 is good.
-Companies that does NOT pay a dividend is preferred. You want the company to re-invest all their profit into further growth if you have the goal to get a 100 bagger.
-Maximum market cap of 1 billion is preferable to be able to get a 100 bagger stock.
-The fastest 100-bagger mentioned in the book to 5 years. More typical 20-25 years.
-You will need also need luck to get the 100-bagger. Not easy to identify.
-When to sell a stock you think can be a 100-bagger? Almost never! Sell when it’s obvious you made an mistake. Do not sell a 100-bagger because it’s temporarily become a bit too expensive or it falls in price because of the overall market sentiment.
-Avoid stop losses. You will get sold out your 100-baggers. Expect volatile prices and large temporary drawdowns.
-Focus on the business performance and not the stocks price.
Portfolio construction with a 100-bagger strategy:
-Carefully selected stocks. Maximum 10 stocks
-Hold for several years
The stock should have a moat to be able to earn a consistently high ROE years afters years. One or more of these:
-Brand: Tiffany, Cola, Sees Candy, Monster
-High switching cost: CSVI (bank software – Core processing), Microsoft, Banks
-Network effects: Twitter, Facebook, Mercado Libre
-Lowest cost operator: Costco, walmart
-You are the biggest and can produce the cheapest (Scale)
Some stocks mentioned in the book:
-Tractor Supply Company
Recommended owner operator stocks:
-First pacific corp
To find 100 baggers you should focus on:
-Look at small/micro cap stocks
-High insider ownership
-Growth! In sales and EPS
-Company with a moat
-You will probably need to look beyond the financial numbers. How does the future look like? What’s the catalyst?
-Hold on for a very long time.
Suggestion for a stock screen to find potential 100-baggers:
-Market cap below 500 mil$
-Sales growth 15% +
-EPS growth 15%+
-PEG below 1
-Insider ownership 10%+
-ROE this year 20%+
-Average ROE past 5 years 20%+
-Past 5 years: ROE not below 15%
-Biotech and financials excluded
Results using Uncle Stock Screener:
|Symbol||Name||Enterprise Value||Market cap|
|MBAP.JK||Mitrabara Adiperdana||63.16M USD||144.87M USD|
|KELLTONTEC.BO||Kellton Tech Solution||21.17M USD||23.07M USD|
|1126.HK||Dream International L||180.30M USD||251.58M USD|
|1523.HK||Plover Bay Technologi||117.44M USD||143.88M USD|
|CHEMCRUX.BO||Chemcrux Enterprises||8.29M USD||9.26M USD|
|0240.HK||Build King Holdings L||57.68M USD||134.62M USD|
|2124.T||JAC Recruitment Co.,||313.46M USD||397.18M USD|
|3966.HK||China Baofeng (Intern||422.79M USD||209.91M USD|
|MRSS.BO||Majestic Research Ser||2.34M USD||921.17K USD|
|8076.HK||Sing Lee Software (Gr||17.80M USD||20.39M USD|
|PONDYOXIDE.BO||Pondy Oxides And Chem||30.67M USD||13.60M USD|
|SUYOG.BO||Suyog Telematics Ltd||41.59M USD||37.49M USD|
|ICP1V.HE||Incap Oyj||66.60M USD||69.27M USD|
|GMBREW.NS||G.M.Breweries Ltd||96.16M USD||94.84M USD|
|FBF.V||Fab-Form Industries L||2.52M USD||3.11M USD|
|SUPRAJIT.BO||Suprajit Engineering||283.90M USD||285.79M USD|
|BLUECHIPT.BO||Blue Chip Tex Industr||4.38M USD||2.34M USD|
|6556.T||Welbe, Inc.||326.09M USD||343.25M USD|
|CL1.AX||Class Ltd||105.72M USD||117.32M USD|
|Green Plains Partners||340.33M USD||173.70M USD|
|VALIANTORG.BO||Valiant Organics Ltd||333.00M USD||321.01M USD|
|3679.T||ZIGExN Co., Ltd.||286.77M USD||326.27M USD|
|AHLUCONT.BO||Ahluwalia Contracts (||174.43M USD||192.86M USD|
|SHRDAIS.BO||Sharda Ispat Ltd||3.62M USD||2.54M USD|
|6071.T||IBJ, Inc.||243.04M USD||241.47M USD|
|PSPPROJECT.NS||PSP Projects Ltd||176.74M USD||202.27M USD|
|KNRCON.NS||KNR Constructions Ltd||474.24M USD||381.36M USD|
|FSMART.BK||Forth Smart Service P||185.36M USD||154.20M USD|
|0150.HK||Hypebeast Ltd||207.58M USD||205.99M USD|
|SALASAR.BO||Salasar Techno Engine||50.46M USD||31.49M USD|
|LUMAXIND.BO||Lumax Industries Ltd||198.67M USD||155.59M USD|
|S11.BK||S 11 Group PCL||229.39M USD||103.33M USD|
|Wavestone SA||515.14M USD||454.82M USD|
|INDOAMIN.BO||Indo Amines Ltd||43.33M USD||28.21M USD|
|TEJNAKSH.BO||Tejnaksh Healthcare L||6.71M USD||5.96M USD|
|JIYAECO.BO||Jiya Eco-Products Ltd||8.12M USD||5.39M USD|
|3772.T||Wealth Management, In||169.83M USD||79.10M USD|
|CALCOM.BO||Calcom Vision Ltd||4.33M USD||3.60M USD|