Henrik Larsson Lyon told me he doesn’t “pay a lot of attention” to Hexatronic Group AB’s share price.
If I was chief executive officer of the Swedish fiber-optic cabling group I’d think of little else. Acquisitions and booming sales in the US, UK and Germany have boosted its value more than tenfold (900%) in the past two years and generated a 35,000% return since 2012 in US dollar terms (an astonishing 55,000% in local currency).
Hexatronic is one of 55 European companies worth more than $1 billion whose value multiplied by 10 in the past decade with dividends reinvested, Bloomberg data show. With returns like these, who needs crypto?
Many of these so-called ten-baggers – the “holy grail” of stock investing — are unfamiliar names, which is a pity because there’s a lot investors might learn from them.
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Europe’s haul isn’t far behind the US, where 71 companies have achieved the same feat in the past 10 years, belying the notion the corporate landscape here is sclerotic. It shows investors can still make astonishing returns in Europe provided they know where to look.
Hopefully, this guide will help you identify the next ten-bagger early and change your mind about Europe’s “dull” business landscape and capital markets.
Investors have to search harder for outperformance in Europe because the continent has a dearth of tech giants; Tesla Inc., Netflix Inc. and Microsoft Corp. increased ten-fold in the past 10 years.
ASML Holding NV, a supplier of lithography technology to the semiconductor industry is the only recent European ten-bagger worth than $100 billion.
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ASML is the sole firm capable of producing extreme ultraviolet machines that cost around 160 million euros ($171 million). (See this fascinating Odd Lots episode for more). Even now it’s hardly a household name.
Companies that increase tenfold in value in a short period tend to have rapidly expanding revenue and profit margins, and are rewarded with a higher price-earnings multiple, according to a recent Bernstein Research analysis (which used a slightly different methodology to mine).
Our European ten-baggers are valued at more than 40 times this year’s estimated profits on average (more than three times the valuation of the Stoxx Europe 600 index). On average, their operating margins have increased from 9.5% to 23% since 2012 and they achieved average annual sales growth of 24% in the past five years. Overseas expansion is often needed to grow this fast: UK equipment-hire firm Ashtead Group Plc generates almost 90% of its sales in North America.
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Of course, a stock has a better chance of rising tenfold if it’s undervalued to begin with. Investors needed to ignore heaps of bad news to buy wind turbine maker Vestas Wind Systems A/S in 2012; those who did have been rewarded with a 2720% return (notwithstanding this year’s disappointing performance).
Besides ASML, the Netherlands boasts two other ten-bagger semiconductor-equipment companies: chip-packaging specialist BE Semiconductor Industries NV and ASM International NV, which controls more than half the global market for atomic layer deposition equipment (whereby ultra-thin films are added to a silicon wafer). Because few companies can produce such complex machinery, they can charge high prices without fear of losing business to competitors.
Similarly, Mycronic AB has a global monopoly in advanced laser-based mask writers for manufacturing television and smartphone displays (it also serves the semiconductor industry). The Swedish firm’s machines create ultraprecise patterns akin to a photo negative; a top of the range model costs up to $45 million each.
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Contract pharmaceutical manufacturing has also been a rich source of investor returns: Lonza Group, Bachem Holding AG and Dottikon ES Holding are all ten-baggers. These Swiss firms’ high profit margins reflect the boom in biotech/pharma company drug development and the trend towards outsourcing. Lonza is helping make Moderna Inc.’s Covid-19 vaccines, and Bachem is a market leader in therapeutic peptides, while Dottikon specializes in “ hazardous reactions.”Life-sciences equipment is another area where European companies excel. Sartorius Stedim Biotech SA, the Paris-listed subsidiary of Germany’s Sartorius AG, makes bioreactors and filtration kit for the biopharmaceuticals industry. The sector is highly regulated and following several takeovers there are few alternative suppliers. Replacing reusable stainless-steel components with its cheaper single-use technology has boosted recurring revenue, which investors value more highly.AdvertisementChemometec A/S, whose shares have climbed 20,640% in the past decade, controls more than one-fifth of the global market for cell-counting machines, which are used in cancer and stem-cell research as well as the production of animal-semen doses for insemination. The Danish group’s operating margins reached 47% in the fiscal year to June.French group SES-imagotag SA has a 50% share of […]
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