Hindsight is the easiest way to assess great investment opportunities. You already know which stocks were the big winners and can say, “If only I invested in that stock a few years ago.”
While some people wish they invested in great opportunities before they went mainstream, other investors did just that. They found great investments before they became great investments and loaded up accordingly.
Some investors made life-changing returns from Apple, Amazon, and more recently GameStop stock. You won’t make life-changing returns from those stocks anymore unless you invest significant money into those stocks.
The higher a stock’s market cap, the more difficult it is to further achieve “to the moon” type returns. Apple stock is a $2.2T company. For it to quadruple in price, Apple would have to roughly become a $10T company. More people have to act together to influence the stock price of a trillion-dollar company versus a company with a market cap under $1B which is where GameStop was before the mania took place.
What Happened Back Then?
The first step to finding stocks that double before everyone else is to ask yourself how and why people noticed stocks like Apple and Amazon in the late 90s and early 2000s.
What was the prevailing narrative that tipped off some investors to buy these companies? And no…don’t just guess. It’s easy to just say, “Well, of course, the internet was just coming out,” when talking about Amazon and, “It was the iPhone,” for Apple.
Figure out what people were saying back then and what analysts were saying (for the more modern success stories, you could also check social media, but that option wasn’t available in the early days of stocks like Apple and Amazon).
In December 1995, Amazon was averaging roughly 2,200 daily visitors to its site. In March 1997, Amazon was averaging roughly 80,000 daily visitors to their site. That’s a 3,636% increase in daily visitors to Amazon’s site in under 2 years, and this was back when Amazon just sold books.
In 1996, Amazon grew its revenue by 2,982%, an extraordinary feat that was masked with small numbers. If Amazon were to do that today, it would be news-shattering. However, Amazon “only” went from $511,000 to $15.75 million. The growth is incredible but the numbers were small enough for most people not to notice.
Amazon went public with a $438M market cap, a far cry from the current $1.6T valuation.
Eye-popping revenue growth and daily user growth for a company just selling books. Jeff Bezos started with books because they were among the easiest items to package.
The company was already in growth mode with many potential catalysts. What if Amazon decided to not just sell books? Could they see similar growth numbers across a range of product industries?
The internet’s growth was also a major catalyst for Amazon, so you had to factor that into your thesis. From 1995 to 1999, internet usage grew from 16 million users to 248 million users. Hypergrowth was the norm, and if you bought a book on Amazon in the 90s, you probably enjoyed the fact that the book came to you instead of you making a commute to the bookstore.
If you can combine hyper-growth numbers with you using, understanding, and enjoying the company, it’s easier for someone to invest in the company early on.
Finding Under The Radar Companies
For several years, Amazon was an under-the-radar company. Their stock price collapse during the DotCom Crash and investors rushing for the exits didn’t help.
Before we can find stocks that go up 1,000% in the future, we have to get better at finding under-the-radar companies.
Under the radar companies usually have market caps below $10B. The lower the market cap, the more under the radar a stock tends to be. Finding companies with low market caps presents more room for a 1,000% return.
You’ll have to do a lot of digging to find under-the-radar stocks, and you’ll stumble on most of them by accident. AcuityAds is an under-the-radar CTV stock that you wouldn’t know to search for.
You might stumble across that stock if you do some research on a more well-known CTV stock such as Roku or The Trade Desk. People in the comments section of an article or video may mention stocks like AcuityAds, Magnate, Perion, and others.
Pay attention to the stocks other people recommend, search their tickers on Google, and see what comes up.
A more advanced approach involves using a stock screener to find stocks that fit certain criteria (i.e. EPS growth, recent stock price movement, sector, revenue growth, and other factors).
I prefer to browse through comments and stumble across stocks in the former approach, but the latter approach can produce great investing opportunities more catered to you.
Determining The Winning Stocks
Once you find several under-the-radar companies, the final step is doing your research to determine which companies make the most sense for your portfolio.
There are plenty of under-the-radar stocks that will skyrocket in a few years, but there are also plenty of under-the-radar stocks that will plummet or stay flat for many years. How do we distinguish future winners from future duds?
Every analysis begins with the numbers. That’s where we get a better understanding of the growth narrative and the company’s past results. Yahoo! Finance allows you to see any company’s revenue and earnings growth for the past few years.
If the company isn’t reporting profits yet, you should look for narrowing losses and accelerating revenue. If revenue decelerates or grows at a slow pace, it’s very likely the stock price won’t budge too much.
In this current market, revenue growth is the major driver. Profitability eventually matters, but most under the radar stocks will start with losses…just as Amazon did in its early days. In fact, Amazon didn’t initially narrow their losses as their revenue grew. In the short term, Amazon’s losses expanded as their revenue grew because they made investments into the business.
If a company has been growing its revenue by 20% or more over the past few years, we have a potential winner.
After you look at revenue growth, look at the stock’s ratios. You can also find these over on Yahoo! Finance. For unprofitable companies, I look at the P/S ratio. The closer it is to 1, the better.
However, some stocks with P/S ratios above 1 will be undervalued if you compare them to other companies in the same industry.
Take Alpha and Omega Semiconductor (AOSL) as an example. They have a P/S close to 1.5. Compare that to Broadcom and Texas Instruments which have P/S ratios of 8 and 11 separately. Those two companies have progressed much further than AOSL, but even if AOSL just got its P/S ratio up to 3, it would result in the stock price doubling…and it would still be undervalued from a P/S standpoint.
You don’t want to compare e-commerce stocks with financial stocks because the e-commerce stocks would then always look overvalued. Compare e-commerce stocks with other e-commerce stocks to determine if something is overvalued or undervalued.
Sometimes you won’t get everything you want in a single stock. AOSL doesn’t hit my revenue benchmark but I still have shared because recent quarters have showcased promising results. This is why you should invest in multiple under-the-radar stocks instead of just loading up on a single under-the-radar stock.
Since fewer people know about these stocks, it’s easier to find them at bargain prices. They won’t be bargain stocks if they become mainstream, but that will be fine with you if you get into these stocks before they become mainstream.
Sometimes you’ll spend hours researching for stocks only to find nothing exciting. On other days, you’ll find solid stocks the market is overlooking. Once in a while, you might find a life-changing investment opportunity.