Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



A 25-Bagger in Five Years

The headline seems preposterous.

Pure substance-less hype.

Prattle. Nonsense. Cheese.

Can anyone really earn 25 times their money in just five years? That computes to an annual return of 90% per year, turning a $40,000 investment into $1 million by December 2010. It strikes veteran investors as unfathomable.

But turn back the clock five years to December 2000, and observe with me Urban Outfitters (Nasdaq: URBN  ) , then valued at $170 million. Today, it's worth $4.3 billion. Yep, the stock has risen 25 times in value in just five years.

The question is, "How could you have found it back then?"

Finding great returns
Well, it would have been extremely difficult had you not been intentionally trying to unearth the next small-cap winner. We embrace that challenge with our thousands of contributing members every day in Motley Fool Hidden Gems, because logic and history demonstrate that the major winners of tomorrow are companies capitalized at less than $1 billion today.

So what was so special about Urban Outfitters in 2000 that we actively screen for in Hidden Gems now? Among other things:

  1. Solid financials.
  2. A non-dilutive board.
  3. Founding leaders with major ownership stakes.

Back then, Urban Outfitters featured double-digit sales growth, $20 million in cash, and no debt. Rather than printing stock options like free lottery tickets, the board of directors was buying back stock. The company's two founders -- Richard Hayne and Scott Belair -- were (and are) engaged as board members. Thirty years after starting the business, they had a major incentive to drive the company. Together, they owned more than 45% of the business. Their combined stock holdings were worth $77 million in 2000. Today, they still own more than $1 billion of Urban Outfitters stock.

Other companies that have fit this mold in the past are Time Warner (NYSE: TWX  ) unit America Online, Gap (NYSE: GPS  ) , Family Dollar (NYSE: FDO  ) , and UnitedHealth (NYSE: UNH  ) , as well as The Washington Post (NYSE: WPO  ) and Wrigley (NYSE: WWY  ) .

These factors -- solid financials, a non-dilutive board, and founding leaders with major ownership stakes -- are some of the core variables we screen for in Hidden Gems. From there, we carry out qualitative research with our thousands of members. To go beyond the quantitative screen, you have to do qualitative research to learn that back in 2000, Urban Outfitters was powering up its expansion of Anthropologie stores with great success.

All the way to a 25-bagger.

We are looking for the greatest small caps today in Hidden Gems. Take a free trial, read through our 50 active recommendations, and do so with no obligation to subscribe by clicking here.

Fool co-founder and Hidden Gems lead analyst Tom Gardner does not own shares of any company mentioned. Time Warner, Gap, Family Dollar, and UnitedHealth are Motley Fool Stock Advisor recommendations. The Motley Fool has adisclosure policy.

Read/Post Comments (3) | Recommend This Article (32)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 01, 2008, at 11:54 AM, bulldung wrote:

    What is a non-dilutive board and how do you determine this?

  • Report this Comment On January 16, 2009, at 1:38 PM, StevenRLane wrote:

    Tom makes a very good point here. I'm not sure it will always result in a "25-Bagger in Five Years", but it certainly seems like it's a prudent and wise investment criteria.

    The founders of the company should certainly make the best board candidates since they know how to grow the business and what strengths and weaknesses the company needs to manage to continue to grow.

    About the only thing tricky about this analysis would be determining whether the founding board member's ownership stake in the company is really a SIGNIFICANT & MATERIAL proportion of their entire investment holdings. It could be that the founder's still hold some stock in the company for purely sentimental reasons...

  • Report this Comment On May 04, 2009, at 11:31 PM, Usnzth wrote:

    How would you determine when to sell a rocket like this? Seriously, it seems like it the most difficult decision would be when to get out.

Add your comment.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 500650, ~/Articles/ArticleHandler.aspx, 10/25/2016 1:29:02 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated Moments ago Sponsored by:
DOW 18,179.79 -43.24 -0.24%
S&P 500 2,145.12 -6.21 -0.29%
NASD 5,282.26 -27.57 -0.52%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

12/31/1969 7:00 PM
FDO.DL $0.00 Down +0.00 +0.00%
Family Dollar Stor… CAPS Rating: ***
GHC $469.90 Up +0.75 +0.16%
Graham Holdings CAPS Rating: ***
GPS $26.48 Down -0.07 -0.26%
Gap CAPS Rating: **
TWX $87.21 Up +0.47 +0.54%
Time Warner CAPS Rating: ***
UNH $143.73 Down -0.96 -0.66%
UnitedHealth Group CAPS Rating: ****
URBN $34.03 Up +0.29 +0.86%
Urban Outfitters CAPS Rating: ***
WWY.DL $79.97 Down +0.00 +0.00%
Wm. Wrigley Jr. Co… CAPS Rating: *****