Wednesday, October 21, 2015

100-baggers since 1962...

Some interesting stats and thoughts from Chris Mayer in his book 100 Baggers: Stocks That Return 100-to-1 and How To Find Them:
There are 365 stocks that have met our 100-bagger threshold since 1962. 
The 100-bagger population seems to favor no particular industry. There are retailers, beverage makers, food processors, tech firms and many other kinds. The only thing they seem to have in common is the subject of the study: they returned at least 100 to 1. 
It’s also worth considering the size of these companies when they started their march. Now I hesitate to make generalizations from the statistics, as I’ve said. And that’s why my focus is more on anecdotal evidence and the ideas or theories behind 100-baggers. With that warning, I’ll add that the median sales figure for the 365 names at the start was about $170 million and the median market cap was about $500 million. 
That’s interesting on two levels: One, it dispels a myth that to get a 100-bagger you have to start with tiny companies. True, these are small companies. But $170 million in sales is a substantial business in any era. It’s not a tiny 50-cent stock with no revenues or barely any revenues. 
Secondly, these figures imply a median price-to-sales ratio of nearly three, which isn’t classically cheap by any measure. Going through these 100-baggers, you’ll find stocks that looked cheap, but more often you find stocks that did not seem cheap based on past results alone
So you must look forward to find 100-baggers. You have to train your mind to look for ideas that could be big, to think about the size of a company now versus what it could be. This doesn’t mean you have to have a huge market to address, although that helps. Even a small company can become a 100-bagger by dominating a niche. Polaris was a 100-bagger and makes snowmobiles. 
Despite occasional exceptions, you do want to focus on companies that have national or international markets. Far more common than niche companies on the 100-bagger list are companies such as Comcast, Aflac, Dollar General, ADP and Lockheed Martin. These companies came to dominate big spaces, though they all started small. 
In 1982, Aflac had just $585 million in sales. By 2002, by which time it was a 100-bagger, Aflac had sales of $10.2 billion. Aflac’s price-to-sales ratio, by the way, went from about 1.7 to 5.4. So, you had the twin engines: sales growth and multiple growth. Sales went up roughly 17-fold and the price-to-sales ratio went up roughly 3-fold. In combination, and including reinvested dividends, they worked the stock up a hundredfold. Even if we exclude the dividends, Aflac became a 100-bagger two years later, in 2004. 
Another interesting chart to look at concerns how long these stocks took to become 100-baggers. The average time was 26 years. That was also the median.