June 2022
The holy grail is the 100-bagger; a stock that returns $100 for every $1 invested.
They may seem impossible to pick out, but definite patterns emerge when studying these companies more closely. A few common attributes are that:
- They solve a real problem, with a unique customer proposition
- They have a long runway for growth
- They reinvest their free cashflow in a way that continues to earn above average returns
- They have a moat so can maintain a competitive edge by a high return on capital that is achieved long into the future
- Their people are great, and they own a lot of their own stock
Buying small and at a good price is important. However, it is this more so this “buy right and hold on” mentality that Thomas Phelps – having spent over 40 years in the investing world – wisely acknowledged. Most people don’t have the stomach for it, especially in turbulent times such as these, but investors should focus on the business rather than short-term market movements.
The fundamental reason for this investment strategy is effect of compounding, as shown in the table below. It takes time to harness its power, but once you do, the potential returns speak for themselves.
| Return | Years to 100 Bagger |
| 14% | 35 Years |
| 16.6% | 30 Years |
| 20% | 25 Years |
| 26% | 20 Years |
| 36% | 15 Years |
The following compounding calculator really drives this point home: https://www.thecalculatorsite.com/finance/calculators/compoundinterestcalculator.php
The smartest minds in the world can’t predict with certainty what will happen to inflation or interest rates, the war or other unforeseen influences that would impact the market. But, if you are well-informed about the businesses you’re invested in and you can justify how it displays the five attributes mentioned earlier, then chances are they are ones to hold onto.
Three Australian stocks that have made it to or surpassed 100-bagger status are:
- Altium (ASX: ALU)
- Realestate.com (ASX: REA)
- CSL Limited (ASX: CSL)
ALU
Altium became a global leader in electronic circuit board design software. Their valuation was originally dragged down by misallocation of R&D spending before the founder was replaced by a dynamic CEO and tech executive. The business then changed its business model from licensing to SaaS and fixed its global sales channels. Previously, the stock price was 15 c in 2010 and today is $28.
Nearly a 200 bagger in 12 months!
REA
Realestate.com is a global online real estate advertising company, acting as a disruptive player to the real estate classifieds. Offering high gross margins, they boast a very large addressable market and long runway for growth. To ensure adoption in their early years, they encouraged leading real estate agencies to become shareholders so that they would be incentivised to bring customers onboard.
They went from 40c in 2000 to over $110 today, making them a 200-bagger.
CSL
CSL Limited was first established by the Australian Government in 2016 and was privatised by an ASX float in 1994. A global leader in plasma, CSL is in the top 1% of companies providing essential blood supply globally. It is up 916 times since it listed, compounding at 24.6% for 28 years. Whilst CSL trades at around $275 more recently, its real share price is $2200 when accounting for three 2-for-1 share splits that many people forget to consider. In other words, you would have 8 times as many shares if you still held your float shares.
If you’ve spotted a 100-bagger, please share your story with us. Or alternatively, if you believe your business offers this kind of potential, we’d love to hear more and would welcome you to reach out directly.
