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Do you know what a “5-bagger” is?<\/p>\n
It’s a stock that rises five-fold from your original purchase price.<\/p>\n
A $1 stock becomes a $5 stock.<\/p>\n
A $5 stock becomes a $25 stock.<\/p>\n
You get the picture.<\/p>\n
When I invest in a stock I’m always looking for a “5-bagger or better”.<\/p>\n
If I’m going to put my capital at risk, I want huge upside (500% gain?)<\/p>\n
Why am I telling you this?<\/p>\n
Good question.<\/p>\n
Today, I’m going to teach you the “secret” to finding these 5-baggers.<\/p>\n
You’ see to make a stock rise 5-fold something drastic needs to happen.<\/p>\n
You won’t make 5 times your money on an undervalued stock.<\/p>\n
You won’t make 5 times your money on big companies like Walmart.<\/p>\n
In fact, most stocks that rise 5-fold have a market cap of $100m or less.<\/p>\n
And the biggest reason a stock rockets 500% or more is because of EARNINGS.<\/p>\n
If earnings are rising a stock has nowhere to go but up.<\/p>\n
And the secret to finding these 5-baggers is something I call…<\/p>\n
Gearing.<\/p>\n
(Most people call it “operating leverage” – But I like to think of it as gearing.)<\/p>\n
Think of when you’re driving.<\/p>\n
You start off in first gear and gradually work through the gears.<\/p>\n
In the lower gears you accelerate quickly, but you only reach top speed in the highest gear.<\/p>\n
This is very similar to the plight of rapidly growing companies.<\/p>\n
They start off in 1st gear, probably with NEGATIVE net income.<\/p>\n
As they progress they grow very rapidly (i.e. accelerating in lower gears.)<\/p>\n
Before long their growth (read: acceleration) slows down, and they start producing positive net income.<\/p>\n
At this point they’re in 4th or 5th gear.<\/p>\n
This is the point you sell, hopefully for 5-times your money.<\/p>\n
I think I’ve taken this analogy as far as it will go.<\/p>\n
But you see my point:<\/p>\n
The trick… is to identify these “fast growers” when they’re in 1st or 2nd gear.<\/p>\n
And the hallmark of a 1st or 2nd gear company is either low or negative net income.<\/p>\n
If you invest in stocks based solely on earnings multiples, you’ll never find a 5-bagger.<\/p>\n
By the time the stock is earning huge amounts – It’s too late.<\/p>\n
You’ve missed the boat.<\/p>\n