You don't need to take huge risks to make big returns.
Many investors think that you can only find tenbaggers in high risk areas like junior resource stocks or the biotech industry. However, the five companies below demonstrate how tenbaggers can be found in almost any sector.
While it's true that it is notoriously difficult to pick tenbaggers (shares that rise in value ten times), each of the companies below has achieved this status following a long period of consistent success.
1) Paddy Power
Paddy Power (LSE: PAP) is a Dublin-based bookmaker and online gambling company. The shares have tenbagged in nine years.
Smartphones and the Internet have revolutionised bookmaking. A commitment to technology and online innovation has seen Paddy Power quickly assume a leading role in this industry. On top of the technology, there is the brand. Paddy Power is known for its distinctive advertising campaigns and headline-grabbing betting offers. Their irreverent, cheeky approach to marketing has made Paddy Power one of the leading gambling brands around right now.
It is striking that Paddy Power has achieved so much in what was already a crowded marketplace. A decade ago, investors would likely have been put off investing in Paddy Power shares by the dominance of other established bookmakers. Today, the company is a serious challenger to the old guard of Ladbrokes (LSE: LAD) and William Hill (LSE: WMH).
2) Aggreko
Aggreko (LSE: AGK) shares have tenbagged since September 2005, and today stand near their all-time high. Their success has propelled the company into the FTSE 100.
Aggreko is a Glasgow-based company specialising in the rental of power generators and refrigeration equipment. In the last five years, Aggreko has increased profit more than fivefold, while sales have nearly trebled. Improved levels of fleet utilisation have delivered a massive increase in margins.
Aggreko is a great example of a 'picks and shovels' investment. Natural resources companies are exploring increasingly remote parts of the world, and it's companies like Aggreko that provide the boring equipment that allows them to do just that.
On a forward P/E of 20 times, Aggreko looks fully priced at the moment. However, another way to access the equipment rental boom could be AIM-listed Northbridge Industrial Services (LSE: NBI). Northbridge is often referred to as a mini-Aggreko. With a forward P/E of just 9.8, it sits on half the rating of its bigger rival.
3) Dragon Oil
An oil company doesn't have to make a massive discovery to tenbag. Dragon Oil (LSE: DGO) shareholders have benefited dramatically from the rising price of oil in the last decade. The company has taken advantage of these high prices by increasing production.
In 2004, Dragon produced an average 8,603 barrels of oil per day. By the end of 2011, Dragon was taking 32,600 barrels per day from its wells. In that time, the price of a barrel of oil more than doubled.
When the prices of commodities rise, firms producing them will often see their shares soar. Investors might do well to identify companies that are currently marginally profitable, but are expected to increase sales or prices significantly.
4) Domino's Pizza
Growth investors are frequently seeking what they call 'roll-out' shares. The investment case goes like this: if a store can trade profitably with 20 units, what is there to stop it 'rolling out' the concept to 100 units nationwide, or even more?
Domino's Pizza (LSE: DOM) is possibly the ultimate recent example of this concept. The company has made investors a massive return in the last decade. Rolling out via a franchise model has enabled Domino's to keep its costs low, while economies of scale mean margins have continued to improve.
Another roll-out story I like is Goals Soccer Centres (LSE: GOAL). Goals already has a dominant position in the UK, and has one centre in California that is now trading profitably. If Goals can expand in the US with anything like the success it has achieved here, then the shares could well multi-bag. Unfortunately, I'm not the only one to see the potential here, as the company is currently in takeover talks with Canadian investors.
5) ASOS
Online clothing retailer ASOS (LSE: ASC) is more than a tenbagger. In March 2004, the company's shares traded around 10p. Today, they are over £16!
Remarkably for such a multi-bagger, ASOS shares actually represented very little risk before their started their remorseless climb. When the shares were around 10p, the company had moved into profit and was growing fast. ASOS was then on a P/E of just over 12.
In 2004, investors scoffed at the idea people would buy clothes on the net, but ASOS appears to have cracked this market. Today, online dating still raises a titter. However, the numbers being reported by dating website operator Cupid (LSE: CUP) prove this is a growing market. Cupid is forecast to double its earnings for 2012, and follow that with another 30% rise. The shares however, trade on a P/E of 14 times expected 2012 profits. If online dating goes mainstream, Cupid investors could do very well indeed.
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> David owns shares in Dragon Oil.
