100 Baggers Screen

19th Aug '17 by matylda

29 comments 10124 reads

Not exactly bored but a little bit of spare time.

This has been on my to do list for a while and it's based on the 100 Baggers book Christopher Mayer, a great read.

Anyway, by keeping it really simple to start with, here's the draft screen, which throws up just 42 shares, which is not a bad base in my opinion.

NOTE: I've opted for 10 as a filter in many cases as just seems reasonable.

So, let's see if we can come up with a screen, I'm sure we can!

1 - PEG less than 1 - Basically means it's earnings are growing faster than the current PE - Peter Lynch also likes this measure.

2 - (Current) Mkt Cap > £20m and (Current) Mkt Cap < £500 - Just seems to make sense.

3 - EPS Growth % (this year) > 10 - Make sure it's earnings are growing at a decent rate.

4 - (Current) ROCE % > 10 - Make sure it's making a decent return on Captial.

5 - (Current) PE > 10 - Make sure the market likes it.

Observations...

A - Of the 42 shares just 6 have a Stock Rank less than 50 - Could perhaps add Stock Rank > 49 for example.

B - Adding Sales Growth % (this year) > 10 - Reduces the list to 35.

C - Adding Operating Profit Growth % (this year) > 10 - Reduces the list even further to a very manageable 30 (which still includes 4 shares with a Stock Rank less than 50). Exclude those and we're looking at just 26 shares.

Where now...

Would love input on this - Of course this is very basic and roughly based on the findings of the book - But even though it's basic, it does quite well to get the list down to 30/26 shares.

So from those 30/26 the job would be to find those with a decent moat with the prospect of becoming 100 baggers in the next, all being well, 10 years or so!

Hopefully I am able to share the screen - Here it is - If not, it's not hard to recreate.

Thanks in advance!

ps - Attached is a screen shot of the 13 qualifying with a Stock Rank > 80 - What's your 100 bagger pick from that lot?

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jonesj

21st Aug '17

Why the minimum market cap requirement ? If the intention is to go for 100 baggers, I would remove that.

I also find it very difficult to imagine some of the following companies 100 bagging:

1 Henry Boot. A 130 year old building company with a share price roughly where it was in 2008.

2 Costain. A large cap & long established construction company.

3 Anglo Eastern Plantations. Long established plantation company (if it's the one I'm thinking of)

4 Dewhurst Butchers. I don't see that much growth potential in the butchers business & they would probably have to diversify or globalize to get 100 fold growth. [Disclosure vegetarian]

They might all be good investments, but I cannot envisage 100 bagging.
However, the idea of searching for 100 baggers is good, as a few big wins can compensate for a lot of failures.

Rusty2

That screen does not work for me, Costain (LON:COST) is a low margin business, in my opinion the only one that may make it is Taptica International (LON:TAP). I think you need to be picking up companies such as Boohoo.Com (LON:BOO), IQE (LON:IQE), Burford Capital (LON:BUR), Purplebricks (LON:PURP) early on say a year or so ago, see ASOS (LON:ASC) up over 1000x in 11 years. Or you want companies that shares fall right down and then recover such as Ashtead (LON:AHT), was 7p in 2003 now 1573p.

Brilliant Leader

22nd Aug '17

An interesting thread. I doubt a stock screen is likely to find companies early enough for 100 bagger. If I was looking for this type of share, I would probably start with an R&D investment screen and then conduct qualitative research to explore market potential and competitive moat.

matylda

Thanks for the input all.

For sure the book is well worth a read and the key really is seeing the potential for the business, the screen was just intended to pick those that meet the kind of minimum financial type requirements set out in the book.

The £20m Mkt Cap rule, for example, exits for the main reason $170m was the median Annual Sales figure for the 365 100 baggers identified - And my own personal view that those less than £20m a a bugger (not bagger) to trade.

The £500m Mkt Cap rule exists as it's possible to see something go from £300m to £30bn but would be exceptional, say, to see a £600m go to £60bn - Over 10 - 15 years.

I know it's not a perfect screen at all, but it does attempt to identify small/medium sized companies that are growing in a fashion similar to the general characteristics set out in the book. General characteristics which of course do not apply to ALL of the 365 100 baggers.

I am for sure grateful for the discussion of course.

Note, I also agree that, on brief investigation, TAP would appear the most likely candidate from the list (Stock Rank 80+) above to 100 bag in the future.

Beginner

28th Aug '17

Dewhurst's the Butcher's went bust c2006. This company makes electrical components. Not sure if they are suitable for vegetarians!
(I think the screen has actually pulled out a lot of decent but mature companies. I have just recently sold out of three, Vitec (LON:VTC) , Microgen (LON:MCGN) , and Costain (LON:COST) ).

tic_tac_toe

is this screen's starting list AIM only or all FSTE all share?

Sorry, I'm getting well confused there. Obviously not much sector expertise in butchers.

I also tend not to be interested in electrical components, due to the intense competition.

29th Aug '17

FTSE All share

iwright7

Matylda,

Last week I brought and have read the 100 Baggers book and found it inspirational and an easy read. Thanks for the recommendation. I do think the author is struggling to lay down screening rules with above average ROE, ROIC, Gross Profit, nearness to 52 Week High and Micro/Smallcaps with a Moat, all getting a mention. I have played about with these metrics which throw up quality companies which could be a forever hold.

I then thought that what we are looking for are exceptional growth companies with momentum, so why not let Growth and Momentum Ranks do the heavy lifting. So my possible 100 Bag screen is;

Mark Cap <£250M – Small enough for an Elephant to gallop.

Spread <500 – No crazy spreads

Growth Rank >75 – Top 25% mixed Growth metrics

Momentum Rank >75 - Top 25% mixed Momentum metrics

5Y Ave ROE >75% Market - Indicative of a Moat and likely above average shareholder return

ROCE last year >10 - Did at least OK last year

This screen returns an eclectic mix of lesser known companies, but whether they have the potential to multi-bag only time will tell. Ian

Taptica International (LON:TAP) is my pick of the bunch.

ricky65

The problem with 100 baggers is that even if you can find them, you'll likely have to hold through some massive corrections (Monster Beverage corrected by over 70%). The risk:reward ratio is no good. You don't have to be in for the whole move. Smaller returns compounded should not be underestimated.

Good stuff - Not at my desk right now - Seems both screens like TAP!

Might be worth chucking a couple of percent of the portfolio at it and coming back in 10 years eh!

Great effort there, appreciated - Will try and look more later in the week.

Yes and if 2% TAP 100 Bagged the whole portfolio will have gone up 200% in 10 years, from this alone. TAP was 8% of my portfolio before running this particular screen, so here's hoping!

Coffee can !

Mark Simpson

Another recommendation for the book from me.

No screen will guarantee baggers let alone 100x but I think it helps to think through the characteristics that such companies may possess. I too think that long term ratios are better that short term so high 5-yr ROE & ROCE is better than 1 year - you want a pattern of being able to re-invest capital at a high rate over a significant period of time. High Gross Margin is important too since it can provide significant operational gearing. In fact I remember the book talking about high gross margin, low net margin being a good feature as the market prices the company on current profitability and growth rates not future potential.

It is for that reason that I think momentum & lower P/E limits are a mistake. It is a lot easier for a company trading on a P/E of 6 to grow it's earnings 20 fold in 20 years and see it's P/E go to 30 and hence be a 100x rather than a company on a P/E of 30 to increase it's earnings 100 fold in 20 years.

Take a recent example that is not a 100x but a well followed stock that has had strong recent returns - IQE (LON:IQE).

In July 2016 it was on a P/E of less than 7, today it trades at a forward P/E of 38. Almost all of the 8x return for the year has been due to multiple expansion not earnings growth. Also prior to the rise over the last year the share price treaded water for the previous 5 years. If you had momentum or valuation or historic earnings growth filters you would miss very good opportunities where future earnings growth drives a significant re-rating in lowly valued companies.

Danger

You may need a different set of rules for recovery type baggers (such as IQE) to growth 100x baggers. Low PE stocks with potential are great if you can find them, but their are high PE stocks that have 100x bagged such as the likes of Amazon/Apple/Coke/Pepsi/Disney/Berkshire.

I do still like these rules though - Especially if running the screen every few months for example - As this should catch most potentials...

3 - EPS Growth (this year) > 10 - Make sure it's earnings are growing at a decent rate.

I just mean, most 100 baggers will meet this at some, hopefully early, stage.

30th Aug '17

But read chapter 4 of the book again. There will be a few high P/E stocks that go 100x but the ones mentioned in the book all had significant P/E expansion - e.g. Monster Beverage 10->50, MTY Foods 3.5->26, . If you have done your own quantitative study and concluded that a lower limit adds value then fair enough but if you are relying on the wisdom and the studies mentioned in the book then there is strong evidence that putting in a P/E >10 filter will reduce your chance of finding multibagger rather than enhance them.

Also I think ROCE >10 is far too low - it is below the WACC for most companies. A company with ROCE of 10 likely has no competitive advantage at all and won't grow without sucking in a massive amount of capital. IMO you need to be looking at 20 or even higher.

Danger,

I was not very convinced by the 100x "data" - None of it has been properly analysed, but then again it stands to reason that low (<10) PE stocks should have a better chance of multi-bagging, perhaps 6 to 60 PE (10x) but that's still another +90x of earnings growth from somewhere.

I agree that 20+% ROCE is preferable, but is rare in beaten down single digit PE stocks, particularly when you add significant and/or.... quality/growth/momentum criteria.

31st Aug '17

perhaps 6 to 60 PE (10x) but that's still another +90x of earnings growth from somewhere.

The maths is multiplicative not additive. So if P/E goes from 6 to 60 then the earnings only have to go up 10x to generate a 100x return not 90x. That's why it is so important to find companies that have a long runway of significant non-capital-intensive earnings growth before that growth potential has been identified and priced by other market participants and hence reflected in a high P/E.

I agree that 20+% ROCE is preferable, but is rare in beaten down single digit PE stocks, particularly when you add significant and/or.... quality/growth/momentum criteria.

Stocks that have the potential to go up 100x are going to be very very rare anyway. They are going to be even rarer if you add additional criteria like high P/E and momentum (which strongly mean reverts over the type of timescales that we are talking about) which work against you.

Also given the type of earnings growth required even when you have a multiple re-rating tailwind you are going to need a ROCE significantly above WACC. It might make sense to exclude this from a screener altogether and assess it more qualitatively in other ways (after all ROCE also mean reverts!) but having ROCE threshold set so low that it is below WACC purely to get more hits doesn't make much sense.

But some are loss making, Ashtead (LON:AHT) was 7p back in 2003, it went to over 1700p recently that is x242. If they are loss making then the ROCE will be negative and there will be no PE. I think by the time the ROCE is >20 the share will have risen considerably. Domino's Pizza (LON:DOM) was under 4p in 2001, so you may have got a x100 bag there, I don't have the figures for 2001, would be interested to see if they were making any profit then.

Lets take a more recent one Boohoo.Com (LON:BOO), it was 22p in Feb 2015, ROCE about 18 and PE was about 21, it has since 10 bagged. Burford Capital (LON:BUR) was around 100p in 2012 ROCE was 0.6, since then it has 10 bagged.

100 Baggers Screen

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Matylda

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