If you're like me, you're sick to death of people hyping Candela Group
What? You mean you're blissfully unaware of Candela Group and its cosmetic laser business, including scars and discoloration? If I hear one more person tell me how dumb I was to have missed the rapid growth in tattoo removal services, I think I'm going to scream.
Anatomy of a sleepy winner
No, Candela is not a "hot" stock. But it is proof positive that you don't need to find a hot, change-the-world technology to generate great investing returns.
It's the 179th best-performing stock over the past decade, but it's been in business, doing essentially the same thing, since 1969. It's an even better performer than truly "hot" stocks such as 181st-place Cheesecake Factory
That's not to say it's been a smooth ride for Candela's investors. The stock market moves in funny ways -- particularly when it comes to obscure small caps. If you'd bought Candela in 1990 and held it through the end of 2002, you'd have lost money. Very frustrating.
But never forget, a stock and a company are sometimes very different. During this period of stock stagnation, Candela's sales doubled, and free cash flow and profit pictures improved.
Who could blame an investor for getting impatient? I mean, a decade of underperformance is tough to bounce back from, right? But the business continued to grow. The combination of business improvements and a static share price acted like a coiled spring. Since 2003, Candela's shares have increased more than five times in value, and while the company has performed well, the stock's performance has been incredible.
Leave the stock, take the business
How would you feel if you had given up on the stock just before this incredible rise? Someone did just that. That's why when Fool co-founder Tom Gardner and I are analyzing small caps for Motley Fool Hidden Gems subscribers, we focus more on the business and less on the stock. The former provides the engine for long-term returns, while the latter is little more than the launching point.
We missed Candela (not to say that this company is finished with its staggering growth), but that's OK -- there are no called strikes in investing. Tom and I comb through the world's best small-cap companies each month looking for opportunities just like Candela. They may not all be 10-baggers, but we're more than happy to be patient with companies that show the kind of trajectory Candela did: a healthy, growing business -- and a totally neglected stock.
For totally free 30-day guest access to Hidden Gems and Bill and Tom's best small-cap stock ideas, click here.
Electronic Arts is a Motley Fool Stock Advisor pick.This article originally ran on Jan. 26, 2006 as "How to Miss a 30-Bagger." It has been updated.
Bill Mann owns none of the companies mentioned in this article. This message is sponsored by the Fool's disclosure policy.