If I were the chief executive officer of the Swedish fiber optic corporation, I wouldn’t think of anything else. Acquisitions and explosive sales in the US, UK and Germany have increased its value by more than 10 times (900%) in the last two years and generated a profit of 35,000% since 2012 in dollar terms US (a staggering 55,000% in local currency).
Hexatronic is one of 55 European companies valued at more than $1 billion whose value multiplied by 10 over the past decade with reinvested dividends, Bloomberg data shows. With returns like this, who needs crypto?
Many of these so-called “ten-baggers” — the “holy grail” of stock investing — are unfamiliar names, which is unfortunate because there’s so much investors can learn from. surname.
Europe’s performance is not far behind the US, where 71 companies have achieved similar results in the past 10 years, disproving the notion that the corporate landscape here is very sclerotic. It shows that investors can still make incredible returns in Europe as long as they know where to look.
Hopefully this guide will help you identify your next 10 bag company soon and change your mind about Europe’s “dull” capital markets and business landscape.
Think small, with one exception
Investors must look more to outperform in Europe as the continent lacks tech giants; Tesla Inc., Netflix Inc. and Microsoft Corp. has increased tenfold in the past 10 years.
ASML Holding NVsupplier of lithography technology to the semiconductor industry is the only European ten-bag maker recently valued at more than $100 billion.
ASML is the only company capable of producing ultraviolet machines worth around 160 million euros ($171 million). Even now it’s hardly a household name.
Essential ingredients
According to a recent analysis by Bernstein Research (which used a slightly different approach to mining), companies that increase in value 10x in a short period of time tend to grow revenue and profit margins rapidly. , while also being rewarded with a higher price-to-earnings multiple.
On average, our European ten-pack bags are valued at more than 40 times this year’s estimated return (more than three times the valuation of the Stoxx Europe 600 index). On average, their operating margin has increased from 9.5% to 23% since 2012, and they have achieved an average annual revenue growth of 24% over the past 5 years. Expansion abroad is often needed to grow so quickly: UK equipment rental company Ashtead Corporation Plc generates nearly 90% of its sales in North America.
Of course, a stock has a 10x chance of going up if it is initially undervalued. Investors need to ignore the pile of bad news to buy wind turbine manufacturer Vestas Wind Systems A/S in 2012; who were rewarded with a 2720% return (despite this year’s disappointing performance).
Do hard things
Besides ASML, the Netherlands boasts two other 10-scale semiconductor companies: chip packaging specialist BE Semiconductor Industries NV and ASM International NV, which control more than half of the global market for deposition devices. atomic layer deposition (whereby ultrathin films are added to a silicon wafer). Because few companies can manufacture such complex machinery, they can charge high prices without fear of losing business to competitors.
Similarly, Mycronic AB has a global monopoly on advanced laser-based masking machines for the production of television and smartphone screens (it also serves the semiconductor industry). The Swedish company’s machinery produces extremely precise patterns like negatives; a top model that costs upwards of $45 million each.
Contract manufacturing of pharmaceuticals is also a rich source of investor returns: Lonza Group, Bachem Holding AG and Dottikon ES Holding are all 10x profitable companies. The high profit margins of these Swiss companies reflect the biotech/pharmaceutical company’s boom in drug development and outsourcing trends. Lonza is helping to manufacture Moderna Inc’s Covid-19 vaccine. and Bachem are the market leaders in therapeutic peptides, while Dottikon specializes in “dangerous reactions”.
Find interesting niches
Life science devices are another area where European companies excel. Sartorius Stedim Biotech SA, the Paris-listed subsidiary of Sartorius AG of Germany, manufactures bioreactors and filters for the biopharmaceutical industry. The sector is heavily regulated and, after a number of takeovers, there are few alternative providers. Replacing reusable stainless steel components with cheaper single-use technology has boosted recurring revenue, which investors value more.
Chemometec A/S, whose shares have grown by 20,640% over the past decade, controls more than a fifth of the global market for cell counters, used in cancer and stem cell research as well as cell manufacturing. animal stem cells. dose of semen for insemination. The Danish group’s operating profit margin reached 47% in the financial year to June.
French group SES-imagotag SA holds a 50% share of the global market for electronic shelf labels — recognized by retailers including Walmart Inc. used to display digital shelves and alert store managers about empty shelves. The stock is up 67% this year alone as most tech stocks sink.
Niche markets don’t have to be high-tech: Games Workshop Group Plc sells miniature orks, space warriors, and goblins to play board games. Its North American expansion and computer game intellectual property licensing have helped the British company increase its operating profit margin from about 15% a decade ago to almost 40% last year. Shares jumped 16% on Friday following the announcement of a potential TV and movie partnership with Amazon.com Inc.
Clean energy
Europe has been at the forefront of efforts to limit climate change, so it’s no surprise that there are a number of ten-bag clean energy companies: In the wind industry, there are turbine manufacturers Vestas and Siemens Gamesa Renewable Energy SA, plus German wind park developers PNE AG and Energiekontor AG; sustainable fuel companies Neste Oyj and Verbio Vereinigte BioEnergie AG; solar generator Solaria Energia y Medio Ambiente SA and British sustainable investment specialist Impax Asset Management Group Plc.
Here, niches can also be highly lucrative: Sweden’s Nibe Industrier A/B has been building heat pumps for four decades, a once obscure technology set to play a major role in decarbonization for indoor heating.
The sector’s outperformance also reflects the massive capital inflows into clean tech in recent years, which has pushed valuations up because there are relatively few shares available for purchase. Nibe is valued at around 50 times estimated earnings.
financial engineering
Like Hexatronic, some European ten-pack companies are mass buyers. Nibe, Vitec Software Group AB, Lagecrantz Group AB and Beijer Ref AB have been competing for acquisition points over the past decade. Beijer Ref, a Stockholm-listed refrigeration wholesaler, last week announced a $1.275 billion acquisition of Heritage Distribution Holdings to enter the North American market.
While consolidating a fragmented market will boost earnings growth, “roll-up” strategies sometimes rely on stock market magic: Investors apply higher earnings multiples to the stock market. buyers compared to the smaller businesses they acquire, providing cheap financing for more deals. As the acquirer gets larger, finding reasonably priced targets can become more difficult, and cost savings sometimes fail to materialize.
One last warning
High valuations could collapse if investors suspect growth may wane. In vitro fertilization and reproductive genetics services company Vitrolife AB has lost two-thirds of its value this year. Nemetschek SE, which sells specialized software used by architects and civil engineers, fell 59% due to concerns about a slowdown in the construction industry.
Even electronic continent may fall out of favor, with hedge fund Marshall Wace LLP shorting stocks this year. When sentiments change, things that go up quickly can fall faster.
