Investing in the types of growth stocks that produce 1,000% returns to investors is one way for individual investors to potentially gain long-term wealth. Let’s go over what exactly a tenbagger is and how to find this kind of stock.
Definition and Examples of Tenbaggers
A tenbagger is a stock that has returned 10 times the initial investment. The “bagger” part of the term comes from baseball in which a base is sometimes called a “bag.” A twobagger would correlate to hitting a double (returned two times) and a fourbagger would mean a home run (returned four times the investment). A return of 10 times is equal to a 1,000% return on the initial investment. For example, if you bought one share of Company ABC stock for $100 and the share price grew to $1,100 per share, it would be considered a tenbagger because your investment grew by 1,000%. Stocks that come close to that return on investment may be considered tenbaggers. A few examples of stocks that could be considered tenbaggers are Shopify, Chipotle, and Monster. In early January 2019, Shopify’s stock (SHOP) was valued at about $138 per share. By the start of August 2021, it traded for over $1,538 per share, more than 10 times the initial price per share in just over 2.5 years. Chipotle Mexican Grill (CMG) may be called a tenbagger stock for its growth between 2010 and 2021. Its stock price rose from an opening price of $173 per share Oct. 1, 2010, to over $1,900 per share at close on Aug. 1, 2021. Energy drink manufacturer Monster Beverage Corporation (MNST) may be called a tenbagger because its stock price grew from about $9.50 in February 2011 to over $97 by August 2021.
How Tenbagger Stocks Work
Peter Lynch’s philosophy for pursuing tenbagger stocks included a few main tips:
Focus on small stocksBuy stocks in industries you understandBuy stocks with weird names or in weird/dull industriesBuy spin-offs
Focus on Small Stocks
It is likely easier for a small-cap stock to go up 1,000% in price than it is for a lumbering mega-cap company to grow that much. Not only may it be easier for small companies to grow than big companies, but you also get the added benefit of multiple expansion in the stock price. Small-cap stocks also tend to be followed by fewer analysts on Wall Street. As soon as they get bigger, though, the more coverage they’ll get and the higher premium valuation they earn.
Buy Stocks in Industries You Understand
Know the businesses you own shares of well and only buy stocks of companies that you personally interact with, according to Lynch. That could mean buying shares of a restaurant you frequently eat at, vendors or companies you use at work, or even brands you notice your family or friends buying into. The reasoning for this is similar to small stocks—if you’re focusing on big-name stocks, you’ll only be buying the stocks everyone else is already bidding up. If you look around for ideas that you personally understand, you could find a diamond in the rough before Wall Street notices.
Buy Stocks With Weird Names or in Weird/Dull Industries
This is the same theory. Lynch talked about the massive gains he had in stocks that bought up funeral homes. He also had a tenbagger in a company that sold parts to gas stations. Boring or disagreeable businesses may not be attractive to Wall Street analysts right away. Who wants to tell investors to go all-in on funeral homes? But if the business grows and the stock price shoots up, Wall Street will have to notice.
Buy Spin-Offs
Spin-offs happen when a big business wants to separate from one of its subsidiaries without selling it. Instead of a sale, it spins shares of the subsidiary business out to shareholders. Shareholders would then have shares of both companies in their portfolios. Lynch noticed that when this happens, many institutions sell the spin-off stock immediately. This is because they have limits on what types of stocks they can buy and how big the stocks can be. All this selling may depress the price in the short term. However, if the business is strong, a higher stock price could come in the long term.
Tenbaggers vs. 100 Baggers
Fund manager Chris Mayer published his book “100 Baggers” in 2018. Mayer studied all the stocks that have returned investors over 10,000% and identified common traits. Unsurprisingly, many of the traits that Mayer identified in his book are similar to the ones that Lynch wrote and talked about decades earlier. The key difference is that Mayer’s 100 bagger philosophy focused on businesses run by owner-operators—owners who also contribute to the day-to-day operations of the company. Mayer wrote that strong owner-operator businesses are the key to finding stocks that will have high returns for decades. Before investing in any stock, do your research, consider working with a financial advisor, and make sure you have your finances in order in case it doesn’t work out the way you hoped. The Balance does not provide tax, investment, or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal.
