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Our philosophy:
Our goal is to find companies that can show at least a 1,000% return on our investment. Some call these “Ten-Baggers”. In order to achieve a tenfold return on our investing dollar, valuation plays a key role.
We are often asked just how does a company make the cut...or what are we looking for when highlighting a company for the HTFBSN? Simply put, our goal is to find a company with disruptive technology that is part of a major investing wave, along with that potential 1,000% return. Hence, our Big Stock designation!
Our definition of disruptive is any technology or service that either changes or creates an entire industry.
A key criteria for making the cut is that the company HAS TO HAVE the ability to become a Big Stock. What does that mean?
Well to give a little history, back when we invested in the venture capital (VC) and angel investing worlds, savvy investors in that genre know that roughly seven out of ten investments would fail. The real key though, was the three investments that did indeed become success stories, would tend to deliver at least ten times our seed money in return. Of course, in order for this to happen, EACH investment had to have the potential to grow at least tenfold...but we don’t want to wait two or three years to see those returns.
As previously alluded, a company’s market capitalization, NOT ITS STOCK PRICE is a must.
Our goal is to find a company that has the potential to grow from their current valuation by at least a factor of ten. Does the technology have the potential to be worth at least ten times the current valuation, or can the company grow their revenues with this technology so it could command a valuation ten times greater than its current market capitalization?
Valuation is key!
It is very rare to find a company that is valued over $100M having the capability to grow tenfold. It happens, but once a company reaches the $100M valuation, if there really is some potential to become that “Ten-Bagger”, institutions tend to discover it and/or they are made an offer they can’t refuse before having a chance to reach that zenith. That is why we tend to stay UNDER the $100M valuation for our ideas. Of course, the lack of research makes our work harder, but that is where we feel the Big Stock returns are found. The lack of research and institutional coverage also means the masses have not discovered or recognized its potential.
For example, let’s take one of our first highlighted companies in the original issue of HTFBSN. That company was Destiny Media Technologies DSNY This particular recommendation was in the .36 - .40 cent range at that time with a market capitalization (valuation) of approximately $20M. We originally thought that Destiny’s disruptive technology was easily worth $200M, hence it fell into our Big Stock return criteria. Fast forward to today, the first week of May 2013, and Destiny’s present market capitalization is approximately $44M. We think our original assessment and vision of the company’s technology worth is now north of our initial estimate of $200M. But the real importance of this example, is that for our original subscribers; they still have the chance to realize that “Ten-Bagger” return!
On the other hand, in keeping with our theme of finding companies under HTFBSN’s ceiling of $100M, let’s now look at a similar company to Destiny. This particular company had recovered from a low in 2008 below 20 cents a share, to a high in 2009 of 75 cents a share and a market capitalization (valuation) of approximately $130M at its peak. The company we are contrasting here to drive home our “valuation is key” philosophy is On2 Technologies. Our subscribers may remember that we have previously mentioned in our coverage on Destiny, that On2 Technologies was acquired by Google in 2010, which offered $133.9M for the acquisition. Remember what we stated earlier... that institutions discover companies once they reach that key threshold of $100M, or they are made an offer they just can’t refuse! In this case mighty Google wanted what On 2 Technologies had.
Furthermore, logic and common sense dictate that companies with market capitalizations of $100M and above, rising tenfold to become $1B companies are very difficult to find. They are few and far between, along with just about everything else happening in the investor’s favor to achieve those kinds of returns! Now ask yourself, what are those odds?
That is why we say valuation, and not stock price, is truely a key element in our highlighted companies chosen for presentation to our subscribers.
Sometimes the difficulty of investing this way is waiting on the masses to catch up
The difference between investing as a Venture Capitalist and being a Joe Public investor, is the liquidity factor. As a VC investor, only an IPO or buyout can provide the ability to liquidate our investment. As a public stock investor, liquidity is as easy as clicking your mouse.
Several CEO’s have told us that we do a pretty good of telling their story, but the bottom line is where it counts. The nanocap world is filled with great stories. How many glossy flyers do you get in the mail each week? The trick is to find a great story that is close to generating revenues or finding institutional interest. Do they have enough cash to survive? How long is their sales cycle? Do they own the technology or are they licensing it? Do they have any death-spiral financing? What is the catalyst that will generate revenues?
We invest like VC’s, but we have a built in advantage... namely liquidity!
The HTFBSN looks at hundreds of companies each month with the proprietary BigStockular tool discussed in our book How To Find Big Stocks. In a typical year this tool might help us find a half-dozen companies that we feel have Big Stock potential. We don't invest in them as day trades or swing trades, but with the intent of a minimum six-month hold to give the company a chance to deliver. Unlike a VC, if we don't like what we see, we can liquidate our position. Advantage us!
In addition, our annual subscribers and those loyal monthly subscribers of six months or more are provided a link to the companies we are performing due diligence on, courtesy of our monthly BigStockular review. These companies might not make the half-dozen or so that actually get officially highlighted for subscribers in the HTFBSN, but some of these could potentially reward subscribers with a positive return on their investment dollars as well, if they choose to purchase. This is an added benefit for loyal readers that is not offered by our competitors!
We love new ideas but if you are going to post a stock, which you think has Big Stock potential, please make sure it meets this criteria:
Does the company have disruptive or breakthrough technology?
Does the technology solve a problem?
Is the technology proprietary?
Is the industry or space for this technology over $1B?
Does the product/service impact the consumer, enterprise or both?
Is adoption expected to occur within 1-2 years?
Does the company have a clean share structure and the ability to raise money?
Is there a recurring revenue business model?
Is the company’s valuation less than $100M (or near it)?
Has the company been listed on Pumps and Dumps?
If your idea has ever been listed on PumpsandDumps.com, it will be deleted immediately.
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