Qualities to look for in 100 bagger stocks
In Christopher Mayer’s book, 10 Baggers, he analyzes 100 bagger stocks— investments returning over 100x your money.
According to his analysis, here are some characteristics of 100 baggers:
- They’re often micro-cap companies (less than $300m market cap).
- The median price-to-sales ratio of these companies is ~3x.
This means valuations matter so don’t expect an overpriced stock to turn into a 100 bagger. Other qualities to look for include:
- Companies with its founder still leading the company as the CEO performed better.
- High return on equity (ROE) with a CEO that can properly allocate earnings back into growth
Jeff Bezos (Amazon) and Warren Buffett (Berkshire Hathaway) are examples of CEOs with an incredible talent for reinvesting earnings into areas that maximized growth.
Long holding period: It takes on average 26 years for these companies to become 100 bagger investments. Before then, these stocks often experience several periods of crashing.
But when these stocks take off, investors usually see two things:
- Earnings growth accelerates.
- The Price-to-earnings ratio expands.
See our full article for all the qualities to look for in 100 baggers and a deeper look at each factor.