A Masterclass In What Actually Drives 350%+ Returns
91% Had Moats, 80% Had Barriers to Entry, 56% Used Acquisitions
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Today I’m not sharing a stock pick. Instead, I want to walk through a piece of research that shaped how I think about finding multibaggers in the first place.
In 2020, an investment adviser called Alta Fox Capital1 did something brilliant.
They screened Bloomberg for every stock that returned more than 350% over five years. Then they studied each one to understand why it worked.
The result is one of the best pieces of research I’ve seen on what actually creates multibaggers.
Not theory. Not backtested models. Real companies. Real returns. Real patterns.
I think every serious investor should study this work.
Here’s what they found - and why it shapes everything I do at Multibagger Ideas.
The Screen
Alta Fox screened for stocks meeting these criteria between June 2015 and June 2020:
Domiciled in North America, Western Europe, or Australia
All sectors except energy, materials, and financials
Total shareholder return greater than 350%
Positive trailing 12-month EBITDA
Market cap between $150M and $10B
Average daily trading value above $200,000
Positive year-over-year revenue growth
Actively traded primary security
104 companies made the cut.
Then they analysed each one - studying what the business looked like five years earlier, why it was overlooked, and what drove the returns.
What Drove the Returns
This is where it gets interesting.
Alta Fox broke down the total shareholder return into three components: EBITDA growth, dividends, and multiple expansion.
The averages:
EBITDA growth contributed 59.82% of TSR
Multiple expansion contributed 44.78% of TSR
Dividends contributed just 1.63% of TSR
The medians tell a different story:
EBITDA growth: 33.65%
Multiple expansion: 65.71%
Dividends: 0%
In other words, both fundamental improvement and re-rating were the dominant driver for most stocks.
What Created the Growth
Alta Fox dug into what actually drove EBITDA and revenue growth. The patterns were striking.
56% of companies used acquisitions as a key growth driver. Nearly one in five made at least one transformative acquisition - a deal that fundamentally reshaped the business. EVI Industries and JD Sports used serial acquisitions to roll up fragmented markets. Eldorado Resorts’ acquisition of Caesars Entertainment was a defining moment.
This is why I spend so much time studying serial acquirers. When management can buy businesses at 5x EBITDA and integrate them into a platform trading at 15x, they’re manufacturing returns. It’s arithmetic, not alchemy.
Here's a new one I discovered last week:
27% launched transformative new products. EOS, for example, went from losses to profitability after introducing its Remote Weapon System. One product changed the entire trajectory.
17% landed major new contracts that stepped up the revenue base overnight. IVU Traffic Technologies won key rail software contracts in Germany that transformed its growth profile.
17% benefited from COVID-related demand - Simulations Plus saw business surge as pharmaceutical companies raced to develop vaccines.
The takeaway isn’t that these companies “did things.” It’s that multibaggers rarely coast on market tailwinds alone.
The best performers actively shaped their own growth - through disciplined M&A, product innovation, or aggressive contract wins. They created catalysts rather than waiting for them.
The Moat Pattern
This is the finding I keep coming back to.
80% of the 350%+ returners had moderate-to-high barriers to entry.
91% had moderate-to-high competitive advantages.
The barriers to entry included:
Regulatory requirements (FDA approval, licensing)
Technological complexity and high start-up costs
Human capital requirements
Patents and IP protection
The competitive advantages included:
Network effects
Cost advantages
Intangible assets (brands, data, relationships)
Switching costs
In my view, this is the single most important finding in the entire study.
Multibaggers aren’t lottery tickets. They’re businesses with genuine structural advantages that compound over time.
Where to Look
Alta Fox found clear geographic and sector patterns:
Geography: The UK, Sweden, Germany, Norway, and Australia were overrepresented. The USA was underrepresented relative to its share of global markets. Why? These countries have strong rule of law and quality institutions - but far less analyst coverage of smaller stocks. Less coverage means more mispricing.
Industry: Technology and healthcare dominated the set. These sectors benefit from low unit costs, high gross margins, operational leverage, and structural tailwinds like aging populations and digital adoption.
Size: 84% of the winners had market caps below $2B at the start. Smaller companies have more room to grow into their addressable markets - and attract far less institutional attention.
Valuation: 82% traded below 3x sales, 20x EBITDA, or 30x P/E at the starting point. These weren’t cheap stocks in the traditional sense - but they weren’t priced for perfection either. That left room for multiple expansion as execution proved out.
The Five High-Level Takeaways
Alta Fox distilled their findings into five principles:
1. Look for businesses with advantageous positioning. 80% had barriers to entry. 91% had competitive advantages. Moats matter more than anything else.
2. Spend time on financially healthy companies. 88% of outperformers came from a position of financial health in 2015. They grew faster than expected - they weren’t turnarounds from distress.
3. Acquisitions can create value. While most acquisitions destroy value, the highest-performing stocks often used M&A to accelerate growth. Finding companies that acquire well increases your odds of success.
4. Don’t rely on multiples. Many top performers started at healthy multiples - not deep value prices. Those multiples often expanded further as quality became undeniable.
5. Be open to international companies. The USA was underrepresented. Sweden, Australia, and Germany punched above their weight. Geographic diversification creates opportunity.
Why This Shapes My Approach
The SQGLP framework I use at Multibagger Ideas didn’t come from nowhere.
It’s grounded in research like this.
Small size - because 84% of winners were under $2B.
Quality returns - because 88% came from a position of financial health.
Growth potential - because EBITDA growth drove a significant proportion of returns.
Longevity of moats - because 91% had competitive advantages and 80% had barriers to entry.
Price - because 82% traded below 3x sales, 20x EBITDA, or 30x P/E - leaving room for multiple expansion.
The Alta Fox study confirmed what decades of compounding evidence already suggested: multibaggers share predictable characteristics. They’re not random. They’re not luck.
They’re pattern recognition applied with patience.
What This Means for You
These are the characteristics that define our investing approach at Multibagger Ideas.
So far, we’ve profiled 18 different stocks we think have multibagger potential - with one already up nearly 200% since publication.
Every company we cover gets evaluated against these criteria:
Does it have a genuine competitive moat?
Is it financially healthy with room to grow?
Does management allocate capital intelligently?
Is the valuation reasonable relative to the opportunity?
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The Companies
Thanks for reading,
Nico
Disclaimer: The Content does not constitute investment advice, financial advice, trading advice, or any other sort of advice. Nothing in this newsletter should be construed as a personal recommendation or advice to buy, sell, or hold any investment or security. All Content is provided for general informational purposes only and should not be relied upon for making investment decisions. You should not make any investment decision based solely on the Content without first consulting with qualified financial advisors, conducting your own research, and considering your individual financial circumstances, investment objectives, and risk tolerance. To read our full disclaimer, click here.
You mention one stock profiled is up 200%. Could you share how the others have done?
Very good insight!