"Hidden gem" describes a high-performing stock that isn't generating much fanfare. In the hidden gem family, some names are undiscovered Hope Diamonds. That's the 45.5-carat gem with an estimated value of up to $350 million.

Admittedly, describing that level of jewelry prestige for any stock takes some liberties, but it is befitting of some names in the unheralded camp. TransDigm (TDG -0.14%) is a prime example.

First, let's address the recent goings-on at this aerospace and defense parts supplier. The company reported fiscal third-quarter results last week, telling investors sales jumped 23% to $2.74 billion while adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) rose 19% to $1.5 billion.

TransDigm stock has been a millionaire maker, and more long-term upside is possible. Image source: Getty Images.

The industrial stock pulled back following the report, extending its 2026 loss to nearly 8%. As of Aug. 7, TransDigm trades 16.3% below its 52-week high, but the stock's history indicates its recent weakness may also be a buying opportunity. Speaking of history...

TransDigm's history matters

Acknowledging that financial markets are forward-looking enterprises, a quick TransDigm history lesson is worth the time because it reveals how this nondescript aerospace stock is the definition of a compounder and a millionaire maker.

The company was formed in 1993 with starting equity of $25 million. After that, no additional equity was raised, but here we are discussing a stock with a market capitalization of $69 billion. TransDigm went public in 2006 at $21 share, and it closed at $1,225.25 last Friday. So even if we're generous and dismiss the stock's lethargy in 2026, it delivered an annualized return of 23.1% through the end of 2025.

Investors who missed TransDigm's first decade as a public company weren't cheated if they got involved with the stock 10 years ago. Since then, the shares have risen nearly sixfold, beating the Nasdaq-100 index in the process while thumping the largest industrial exchange-traded fund (ETF).

TDG Total Return Level data by YCharts

It's safe to say TransDigm is a serial compounder, and part of the reason it attained that status is because it's a serial acquirer. Over the years, it has acquired dozens of purveyors of "mission-critical" aerospace and defense components. It's almost guaranteed that the next time you travel by air, the plane you're on will have at least a few parts manufactured by a TransDigm company. Put differently, TransDigm puts the "wide" in "wide moat."

Berkshire Hathaway comparisons

TransDigm is often compared to a private equity firm because its approximately 100 divisions largely operate autonomously. That's comparable to the conglomerate-like structure of Berkshire Hathaway, where Warren Buffett was famous for letting the top executives of units such as Dairy Queen and BNSF Railway do their thing without day-to-day meddling from the boss.

Buffett was also famous for embracing wide-moat businesses, and TransDigm certainly checks that box. Buffett's affinity for wide-moat enterprises stems from their pricing power. He once said, "The single most important decision in evaluating a business is pricing power."

That wisdom is instructive in evaluating TransDigm's potential to continue compounding. Not only does TransDigm have pricing power, but some market observers also view the company as having a quasi-monopoly because many of its operating divisions face little or no competition. Put simply, TransDigm provides clients with essential products that can't be easily attained elsewhere, and that's an attribute long-term investors need to consider.