The makings of multibagger shares with Stockopedia
Dec 26, 2023
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Ed Croft, CEO of Stockopedia, provides deep insights into the makings of multibagger shares and what investors should consider when buying high-growth companies. The podcast explores the quantitative and qualitative characteristics of companies that have generated high returns and discusses success stories of Games Workshop and Judges Scientific. It also discusses strategies for finding and holding onto potential multi-baggers and analyzes catalysts for UK markets and potential multi-bagging returns.
Companies with simple and consistent operating models, international expansion, and monetization of intellectual property have the potential to be multibaggers.
The buy-and-build strategy, through acquiring niche businesses at fair prices and achieving earnings enhancement through consolidation, can lead to multibagger returns for companies.
Deep dives
Main Ideas and Key Points
The podcast discusses the strategies and characteristics of companies that have the potential to become multi-baggers, generating significant returns for investors. It explores the importance of simple and consistent operating models, competitive advantages, and acquisitive business models, along with the significance of strong leadership and management tenure. The podcast emphasizes the role of sales growth runway, operating leverage, and PE multiple expansion as key drivers of multi-baggers. It also highlights the challenges in identifying and sticking with these companies, including the temptation to sell after initial gains. The episode concludes by examining sectors that have produced multi-baggers and the current environment for UK stocks, including the potential opportunities and risks they present.
Games Workshop: A Case Study in Multibagging
Games Workshop, a company catering to hobbyists in the craft and tabletop gaming industry, demonstrates the multi-bagging potential of a simple and consistent operating model, international expansion, and the monetization of intellectual property. The company's focus on retail outlets, online sales, and IP licensing has propelled its sales growth, resulting in margin expansion and a significant rise in its PE multiple. Games Workshop has achieved a multibagger return of 14 times over the past decade.
Judges Scientific: The Power of Acquisitions
Judges Scientific's success as a multibagger is attributed to its buy-and-build strategy in the scientific instrument sector. By acquiring niche businesses at fair prices and achieving earnings enhancement through consolidation, the company has demonstrated remarkable growth and a strong valuation. The acquisitions have allowed Judges Scientific to achieve operating leverage, margin expansion, and PE multiple expansion, resulting in a nine-bagger return.
Challenges for Investors and the Future Outlook
The podcast acknowledges the challenges of identifying and sticking with potential multibaggers, including the temptation to sell after early gains and the risk of companies being acquired. However, it encourages investors to focus on momentum, not shying away from stocks that have already risen, and using stock screening tools to identify companies with strong quantitative metrics. It also highlights the potential catalysts for UK stocks and mentions the current attractive valuations that may lead to future multibaggers. The podcast concludes with optimism for the UK market, noting signs of improving market conditions, potential inflows from institutional investors, and the historical impact of sequential down years leading to better returns.
Multi-Baggers – these are the stocks which can make a portfolio.
Owning just one can transform your returns and lead to a great acceleration of personal wealth. Everybody looks abroad enviously at the US stock market, but in a very difficult decade for the UK economy, a selection of outstanding shares have dramatically beaten the market.
Ed provides deep insight into the key characteristics driving the returns of multibagging shares and what investors should consider when buying high-growth companies.
Careful attention is paid to the financial ratios and metrics shared by companies that produce returns many times the original investment.
