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Written by and copyright © 2005-2017 by Thomas N. Bulkowski. All rights reserved. Disclaimer: You alone are responsible for your investment decisions.
See Privacy/Disclaimer for more information.
10-baggers are stocks that rise by at least ten times the purchase price within 5 years.
The 5 year time limit is arbitrary. This article discusses finding 10-baggers using fundamental analysis to select stocks.
10-Bagger Summary
I built a database of fundamental values and then mined that data to find fundamental factors that most 10-baggers shared. I searched through 974 stocks but found only
163 samples of 10-baggers from 1992 to 2007, using split un-adjusted data to get an accurate price representation. That's important since a stock valued at $30 today can
become $10 tomorrow after a 3 for 1 stock split. Any fundamental ratios, such as price to earnings, price to sales, and so on also change after a stock split. That's why it's
important to exclude splits (or compensate for them) from the analysis.
The details of this analysis is in my book,
Fundamental Analysis and Position Trading  ,
but here are some of the findings. Most numbers apply to the year before the 10-bagger began.
- Almost half (41%) of 10-baggers take a full 5 years to complete.
- 55% of the samples had a starting price below $5, but only 2% were below $1.
- The first year is when 10-baggers rise most.
- 77% were small caps. Market cap is shares outstanding times the current stock price.
- Half the samples had a price to book value below 1.5.
- Capital spending decreased 59% of the time from the year before the 10-bagger began.
- 35% of the time, the stocks had price to cash flow below 1.0.
- 91% of the stocks did not pay dividends.
- 77% had long term debt.
- Net profit, P/E ratio, and ROE are almost meaningless when searching for 10-baggers (because many companies were unprofitable).
- 53% of the stocks had price to sales ratios below 1.5
- 51% had return on equity below 12%.
- The number of shares outstanding climbed in 84% of the samples.
- Which industries had the most 10 baggers? Semiconductors (first), home builders (second), internet, and semiconductor capital equipment.
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The best time to go shopping for 10-baggers is just as or just after a bear market ends.
Using the following criteria on split un-adjusted stocks found 104 samples with gains average 585% over 5 years. Twenty-eight (27%) of them were 10-baggers, but 6% showed
losses averaging 26% over 5 years.
This list is slightly different from that published in the book because I allowed almost all of the samples through here but the book uses a cutoff of 66% to
weed out the poorer performing fundamentals.
- Purchase price: $1 to $5.
- Small caps only (stocks worth less than $1 billion).
- Price to book value: less than 4.0.
- Price to cash flow: less than 6.0.
- Price to sales: less than 1.5.
- No dividends
-- Thomas Bulkowski
Written by and copyright © 2005-2017 by Thomas N. Bulkowski. All rights reserved. Disclaimer: You alone are responsible for your investment decisions.
See Privacy/Disclaimer for more information.
If all the world's economists were laid end to end, they wouldn't reach a conclusion -- William Baumol.
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