Wal-Mart (NYSE:WMT) is the No. 1 retailer in the world. In 1972, it was breaking the rules of the American marketplace. I've been studying the company's archived annual reports because they offer a blueprint of what was then a small company on the verge of world domination.

A brief look back
The story of Wal-Mart's rise is the stuff of legend. The cover of the company's 1972 annual report featured the locations of its 51 stores in five states: Arkansas, Louisiana, Kansas, Oklahoma, and Missouri. Today, there are more than 6,000 outposts in 11 countries. In 1972, company president Sam Walton wrote that there were 2,300 employees in the Wal-Mart world. Today, there are 1.8 million associates. During that time, the company has increased more than 1,000 times in value -- growing from a $195 million micro cap to a $200 billion global leader. Along the way, investors realized greater than 20% compound annual growth.

Impressive? Quite. Amazing? Certainly. Reproducible? Absolutely.

So, then, how could investors have known way back when that Wal-Mart was a Rule-Breaking growth stock?

Clues to use
Three traits jumped out at me while flipping through the Wal-Mart annual reports:

  1. Based on top-line growth, the company was going nowhere but up. From 1969 to 1970, sales grew 44%. From 1970 to 1971, they grew another 44%. From 1971 to 1972, sales grew an astounding 76%. Sales were increasing and accelerating.
  2. Management at the young company was competent and shareholder-friendly. Return on equity (ROE) was 35% in 1971. Return on assets was 10%. The very next year, ROE was an absurd 63%. In other words, Walton and his team were maximizing the business model.
  3. Walton had a clear and compelling vision for the future. That vision included dominant store growth in communities within 300 miles of the distribution center and an efficient business model that could maintain the lowest possible prices and margins.

Those three Rule Breaking tenets formed the basis of Wal-Mart's sustainable advantage and helped it become one of the strongest public companies in the world.

Foolish final thoughts
Accelerating sales, a sustainable advantage, and smart management are three factors the Motley Fool Rule Breakers team uses to identify tomorrow's landscape-changing companies today. They were the key to Wal-Mart's success, and they also catapulted a number of other industry-leading companies, including Microsoft,Costco (NASDAQ:COST), Southwest Airlines (NYSE:LUV), eBay (NASDAQ:EBAY), Tiffany (NYSE:TIF), and Gap (NYSE:GPS).

Early investments in groundbreaking companies like these could have supercharged your portfolio. How much? Since it's not reasonable to assume you can buy every Rule Breaker at its IPO, let's assume you found these companies a full two years after they went public.


IPO Date



Oct. 1, 1970



March 13, 1986



Dec. 5, 1985



June 8, 1971



Sept. 24, 1998



May 5, 1987



July 30, 1976


Average CAGR


*Compound annual growth rate, taken two years after IPO date to the present.

With a 16% CAGR and a $10,000 investment, you can be a millionaire in about 30 years -- without adding new money. That's the enormous profit potential in finding Rule Breakers early on. Click here to learn more.

This article was originally published on Aug. 22, 2005. It has been updated.

Tim Hanson does not own shares of any company mentioned. Microsoft is an Inside Value recommendation. Costco and eBay are Stock Advisor picks. Gap is a recommendation of both Inside Value and Stock Advisor. No Fool is too cool fordisclosure, not even Tim.