Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.
This under-the-radar stock deserves your attention.
*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.
Alert: Top Cash Back Card Now Offers 0% Intro APR Until Nearly 2027
Enjoy 0% intro APR on purchases and balance transfers for 15 months—plus up to 5% cash back in popular categories.
Posting annualized total returns of 26% since its initial public offering in 2009, OTC Markets Group (OTCM 0.02%) may be one of the most surprising multibaggers on the publicly traded markets. Shorthand for over-the-counter (OTC) markets, OTC Markets hosts roughly 12,600 businesses that do not qualify for the more stringent marketplaces, such as the New York Stock Exchange or the Nasdaq Stock Market.
The company may often be viewed as risky due to its connection to these pink sheet shares, which are generally companies in default or severe financial distress. OTC Markets itself, though, could hardly be in better financial shape -- and its recent shareholder returns speak to that fact.
Let's dive in and see why OTC Markets looks well positioned to continue its multibagging ways in 2024 and beyond.
Serving broker-dealers, professional and individual investors, and issuers (companies looking to be publicly traded), OTC Markets operates three business segments:
The beauty of this suite of OTC offerings is that the company generated 82% of its revenue in 2022 from recurring sales, providing investors with valuable predictability and stability. While sales and net income only rose by 4% and 3% in the company's most recent quarter due to low volatility in the stock market, OTC Markets quietly made two acquisitions in 2022 to restart its growth.
First, the company acquired Blue Sky Data and its state law compliance data on over 40,000 equity and debt securities for a mere $12 million. A few months later, OTC Markets picked up EDGAR Online (yes, the old-timey website you may have read SEC documents on researching new stock ideas) for a minuscule $3 million. Together, these two purchases beef up the company's market data, disclosure, and news services, bolstering OTC Markets' leadership position as the one-stop shop for anything related to being traded over the counter.
While these acquisitions represent OTC Markets' first foray into the mergers and acquisitions (M&A) market, they are far from a make-or-break proposition for the $700 million company. Even without any M&A activity until 2022, OCT Markets has more than quadrupled its revenue since 2009, highlighting its long-standing ability to grow organically.
In addition to the company's recurring revenue and impressive growth over time, OTC Markets boasts one of the highest cash return on invested capital (ROIC) marks out there at 74%. Measuring the free cash flow (FCF) a company generates compared to its debt and equity, a high cash ROIC like OTC Markets' has proven over time to be a market-beating proposition for long-term investors.
To put the company's incredible cash-generating prowess in perspective, only two S&P 500 stocks currently have a cash ROIC higher than OTC Markets' 74%.
The cherry on top for investors?
OTC Markets' management has an incredible track record of returning the vast majority of this FCF to shareholders through quarterly and special dividend payments.
Returning roughly two-thirds of its FCF to shareholders through dividends since its initial public offering, OTC Markets is as shareholder-friendly as a stock can get. And with CEO Cromwell Coulson holding 28% of the company's total shares outstanding, it is well incentivized (and aligned with individual investors) to ensure the payments continue flowing.
At 26 times FCF currently, the company looks like a perfect example of a premium business trading at a fair price. Whether it's the 3.7% dividend, the company's steady growth within a niche market, or its best-in-class FCF generation, OTC Markets looks poised to continue its multibagging ways far into the future for investors.
Motley Fool Returns
Market-beating stocks from our flagship service.
Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 2025-08-29 12:01:44.959897.
Discounted offers are only available to new members. Stock Advisor list price is $199 per year.
Calculated by Time-Weighted Return since 2002. Volatility profiles based on trailing-three-year calculations of the standard deviation of service investment returns.
