I Tracked Every Stock That 10xd In 5 Years

I tracked 15,000 stocks over 20 years to find those rare stocks at 10 times in price within just a 5-year window. You might think there are no patterns with these types of unicorn stocks, but my analysis shows that there is. So, let’s look at what I discovered and how it can help us as investors today. The first and the most important question is, can you only get mega returns like this from investing in small-cap stocks? Now, all companies start off small, right down here. So, finding the earliest entry points to 10x is clearly going to weight towards smaller cap stocks. So, to keep this fair, instead of identifying, say, the earliest entry points that you’d have to take to 10x, I instead found all the stocks that did 10x, also known as 10-baggers, and then I worked backwards. Basically, I found the latest possible entry point you could still invest in these stocks and end up with a 10x return within 5 years. The latest moment where a 10x was still achievable. What size were these stocks then? Large cap, small cap, nano cap? What do you think? Well, here’s the data. 70% had a valuation under $500 million. Another 13% were between $500 million and $1 billion. So, 83% at the absolute last opportunity were still under $1 billion in market cap. Only 2% were above $10 billion. And $10 billion would just about get you onto the S&P 500 these days. Although that would be different the further back we go, but it still very clearly tells a story. It’s very rare for large-cap companies to experience 10x in price within 5 years, but it is still possible. And quite a few of those 2% names you will recognize. Nvidia, Palantir, Shopify, Moderna. Now, more larger cap stocks than this do 10x eventually, just not this quickly. 10x-ing within a short 5-year window is rare. For example, Microsoft gained 10x between 2011 and 2021, but that took 10 years, double our time frame. A 10x gain in 5 years is extremely rare with large-cap stocks, which kind of leads right into the next question. Within that 5-year window, just how quickly did these stocks actually rise? This is the distribution of how quickly those stocks 10x. The median time from entry to peak was 35 months. That’s just under 3 years. Only 16% 10x-ed within 12 months. 10x-ing within 12 months sounds crazy, but it does happen. Nio, the Chinese electric vehicle firm, is one of them. It 10x-ed back in 2020. And even though it’s Chinese, it’s listed on the New York Stock Exchange. Inovio is another. They almost produced a COVID vaccine in 2020, prompting a 10x gain in just a matter of months, but it failed in clinical trials and the stock has since dropped over 99% in value. These get-rich-quick types of stocks, they do exist, but they’re extremely rare. And it gets worse because those stocks which do have rapid rises tend to come down just as hard. Look at this. Stocks which 10x-ed within a year had a median drop of 90% from their peak by just 3 years later. They rose like a rocket and then collapsed. And that effect is pretty linear. The slower the stocks rose, the less likely it was to collapse. However, even the ones that took the whole 5 years to 10x, and I say whole in a relative context here, it’s still a very short time frame, but they still had a pretty big median drop of 30% 3 years later. The point is, the faster the rise, the higher the risk. 10x-ing within 5 years is already rare. And then this analysis shows that maintaining that level once it’s achieved is even rarer still. But there are some useful findings in this analysis even for the long-term investors, which is what I actually am at heart. Because, yeah, these 10x stocks might be rare, and yes, they might be high risk, but the reward is gigantic. So, the question is, are there any trends or common traits to be found in these mega growth stocks? If I asked you to describe the traits of a stock about to go up 10 times in value, you might logically say that it’s highly profitable or has fast-growing revenues or strong returns on equity. These would be sensible ideas. The strategies on my free stock screener are based on these kinds of principles because typically they do help to identify better investment opportunities. Indeed, the stocks highlighted in those strategies on my free screener are significantly beating the market since I started sharing them with you about 16 months ago. This is totally free, by the way. You can see the stocks which qualify from the USA’s top 500, my gift to you. 14,000 investors use it already, so if you don’t, there’s a link below. Check it out. sure it will help you discover some interesting stocks. But back to this analysis. Growing revenue, good return on equity, strong cash flow, none of these seem to predict these 10x stocks. In fact, only 33% of these stocks were even profitable at the start of their 10x period. And so, the median return on equity was negative, minus 9.6%. And most surprisingly, the median 1-year revenue growth was just 4%. They weren’t even growing much, but there was one characteristic that quite consistently showed up. 72% of these stocks which went on to 10x had low debt. They had a debt-to-equity ratio below one. Many of these stocks weren’t making money yet, but they also didn’t have the financial straitjacket which debt causes. So, they could reinvest. They could pivot. They could aggressively attack expansion without any lender breathing down their necks. At whatever level I analyze stocks, debt consistently comes back as one of the main killers of growth. And this analysis kind of tells that story again, which is useful to know even if you’re not trying to find these unicorn opportunities. Debt kills business. It was Warren Buffett who says, “History tells us that leverage often produces zeros even when it’s employed by very smart people.” But low debt, well, that keeps a business agile. It gives them a competitive advantage. And this analysis tells that story again. But that’s not all because there are some even stronger trends. And one of them is found when we ask the question, “Over the last 20 years, which industries have produced these 10-bagger stocks?” This analysis shows the number of stocks each year which then went on to 10x within the next 5 years, split by sector. And immediately we see some pretty strong trends. Healthcare represents 25% of all 10x stocks. Technology is second at 18%, which is straight away kind of surprising, right? I think many people would have had technology placed at number one. But there’s a very good reason it isn’t, which we discover when we go down a level deeper. This analysis shows the same idea, but instead of sector, we split by industry. And industry is a lot more specific than sector. There are only around 10 sectors in the US stock market, whilst there are well over 100 individual industries. And I’ve selected just the top ones here. And this is where we discover why healthcare has the most 10-bagger stocks. Biotechnology. It represents 15% of all 10x stocks just on its own. The only industry even close is software. And biotech shows up almost every single year with just one exception in 2012. It consistently produces these mega growth stocks, and there’s a very logical reason why. Biotechnology uses science to develop new medical treatments which are more targeted at solving the underlying conditions than other types of medicine, which often just alleviate the symptoms. It’s the difference between taking a paracetamol to reduce the pain of a migraine versus the biotech approach, which would be to stop the migraine from happening at all. And since it’s a medical treatment, it needs to go through R&D and testing and eventually approval. And that’s where the magic happens. Because an FDA approval and patent protection on a treatment with a large addressable market can take a company from a tiny startup biotech firm to a biotech giant overnight. And so, we get these explosions in share price. We mentioned Inovio earlier, who 10x-ed on the hope that they were going to develop a COVID vaccine. They are a biotech firm, and it’s a very real example of how this industry operates. It’s kind of unique. But this heat map, it tells us an even more interesting story than just these biotech results. In fact, it tells us a story we can use really for any type of investing. Let me ask you a question. When would be the best time to buy stocks which you hoped would go on to 10x? Would it be when debt is cheap, so they can leverage to quickly boost their growth? Or would it be when outsider investment is easy to get? Both software and biotech are heavily reliant on angel investment, and the economic cycle determines when investors are more easy to win over. Or would it be when consumer confidence is booming, so you have this huge demand spike and you can grow to meet it? Well, what do you think? To find out, let’s take this annual data from earlier, which shows the start of the 10x periods, but instead of splitting by sector, let’s just get the total sum per year. Then, let’s overlay those numbers onto a chart of the S&P. The higher the bar, the more stocks went on to 10x from that year onwards. And then, let’s mark the three bear markets of the last 20 years, those periods where the market dropped 20% or more since its peak. And also, let’s mark the 2016 slowdown, which wasn’t quite a bear market, but it was a significant drop of around 13% to 15%, so quite a big correction. Well, that’s a pretty strong trend, isn’t it? The only one without a high counter stocks which went on to 10x is 2022, but that’s not even 5 years ago yet. Give it another year and that will likely have risen. One might reasonably assume that these crazy 10 bagger in 5 years stocks are a breed of their own and the wider market doesn’t really influence them, but it does. Just like we see over and over again, the bad times, the periods when the market is down, when investors are gripped by fear, are the exact times where the best opportunities appear. You’ll recognize many of these stocks. 2008 and 2009 started mega runs for Under Armour, Domino’s Pizza, and Lululemon. 2016 saw Nvidia, Shopify, Etsy 10x over the next 5 years. And 2020 had Broadcom, Neo, and Arista Networks. The markets dragged these stocks down just before they exploded. And this analysis proves it these stocks weren’t just dipping slightly when their runs began. These are the median drawdowns below their 52-week high of those stocks which went on to 10x during these down market periods. 40% down, 30% down, 36% down. They were being dragged down by the wider market which made their later share price growth even more explosive. It’s yet another clear example of Warren Buffett’s famous saying of being fearful when others are greedy and greedy when others are fearful. Before this analysis, I didn’t expect that to extend quite so strongly to these crazily explosive stocks as well, but now I know it does and so do you. This analysis hasn’t enthused me to try and find tiny stocks which might 10x in just a few years. If anything, it shows just how risky and difficult that investing approach is. But what it has done is once again further enforced that when everyone else is fearful, it’s exactly the time when the best opportunities appear. And if you want to discover some of the best ways of finding stocks that are built to survive and then benefit from stock market crashes, then watch this video next where I’ll show you the data that separates the stocks that recover from the stocks that don’t.