Tenbagger: How do you find stocks with explosive growth?

The so-called Tenbagger Shares are highly sought after by investors. Especially in euphoric market phases, the financial media report on exciting shares and increase the hype among many investors.

But what is a tenbagger and how do you find companies with enormous growth potential? We have compiled the most important information for you in this article.

What is a tenbagger? 

People who invest in the stock market often dream of hitting the right Share trend and achieve exceptionally high profits with one security. A so-called tenbagger is exactly that: a direct hit in your own Equity portfoliowhich multiplies its value within a short period of time. 

That's what's behind it:

• DefinitionA tenbagger is a share that increases at least tenfold in a reasonable period of time (return of more than 900 %)
• Significance: Due to their extremely lucrative growth, such shares are highly sought after by investors. 
• Term: Peter Lynch coined the term in his book "One Up on Wall Street" to describe shares from underestimated sectors with exceptional price potential.
• Innovative sectors: Tenbaggers are often found in sectors such as AI, biotechnology or cybersecurity. New markets and opportunities quickly emerge in such areas. 
• Very rare: Only about 3 % of US stocks can become a tenbagger over ten years.
• Value investingTenbaggers are examples of successful value investing. Investors buy shares whose current price is below their real value. 

The term "tenbagger" comes from baseball and stands for a direct hit with maximum points. Stock market guru Peter Lynch first used it for securities and is considered the intellectual father of the concept. 

The term has long since become established worldwide for particularly lucrative shares. In some cases, investors already refer to a share as a tenbagger if it has grown exceptionally strongly in a short period of time. 

The tenbagger phenomenon rarely occurs in practice. However, there are strategies you can use to increase your chances of finding one. 

Find Tenbagger shares: How to succeed in the search

The search for tenbagger stocks is challenging, but with a clear strategy you can increase your chances of success. A combination of quantitative and qualitative analysis, knowledge of the sector and the targeted use of your own expertise is crucial.

• Quantitative analysisThe evaluation of key figures such as P/E ratio, EPS (earnings per share) helps to identify undervalued growth companies.
• Qualitative assessmentThe business model, innovative strength and focus on megatrends are key factors for long-term growth.
• Industry focusTenbaggers often emerge, especially in dynamic sectors such as technology, artificial intelligence, biotechnology, e-commerce and renewable energies.
• Own expertiseOnly invest in areas that you understand yourself so that you can better assess opportunities and risks.
• MeaningfulnessAccording to Peter Lynch, the targeted search for tenbaggers is not the actual goal, but rather a rare reward for a consistent value investing strategy.

Analysis: Quantitative aspects

Looking at relevant key figures is an important step in finding a tenbagger. There are various approaches to this; in the following, we would like to present the aspects that the "inventor" of tenbagger shares, Peter Lynch, considers to be particularly important. 

1. price/earnings ratio

The P/E ratio of shares is a well-known measure that is often used in the context of very general tips ("P/E ratio should be better than X"). However, Peter Lynch does not make any general statements about what constitutes a good or bad price/earnings ratio. Instead, he recommends a comparison with other companies. 

A possible sign of a tenfold increase is a P/E ratio that is below the industry average. In addition, the price/earnings ratio should be below the company's five-year average. 

2. price-earnings-growth ratio

The price/earnings/growth ratio, or P/E ratio for short, can be seen as an extension of the P/E ratio. It is a popular ratio that is used, among other things, in the search for Value Aktien is used, 

• It describes the ratio of the share price to earnings per share and growth expectations. 
• For the calculation, you need the price/earnings ratio and a forecast of earnings growth. 
• While the P/E ratio is an easy indicator to find, there is more leeway with the earnings forecast. You can obtain such forecasts from various stock market portals or analysts. 
• Obtaining several forecasts and calculating an average value has proven to be a good idea. 

The evaluation of the result is very simple for Peter Lynch:

KGW <1	KGW = 1	P/E RATIO >1
Undervalued company	Fairly valued company	Overvalued company
Good chance of a tenbagger	Little chance of a tenbagger	Almost no chance of a tenbagger

As with all key figures in the Fundamental analysis caution is also required here: You should always consider such values in a differentiated manner and in context. In the case of the KGW, the growth forecast in particular is an adjusting screw that can easily distort the result. 

Too few sources, use of historical growth data ("trailing PEG") or an unfavorably selected time period are problematic. A very unusual P/E ratio (e.g. negative P/E ratio due to massive investments) also makes this indicator useless. 

3. earnings per share

Another important key figure for Lynch is earnings per share (EPS). This is calculated by dividing the company's profit in a given period by the number of shares issued. 

• However, it is not the earnings per share in absolute figures that is of interest here, but the development of this value.
• Peter Lynch looks at EPS growth over five years. 
• The result should be high, but not above 50 %. This is because an excessive increase could attract competitors. 
• If other companies have recognized a particularly attractive business model, they could enter the market and cause problems for the company that is to become a tenbagger. 
• Excessive growth is therefore also a warning signal for Lynch. 

4. sales growth

Strongly growing sales are a clear sign of increasing success and a basic requirement for a tenbagger. Rates of over 20 % per year have proven to be ideal. 

Another advantage: as many future tenbaggers are not yet profitable, we can recognize their potential with sales growth without being distracted from actual profits. 

5. free cash flow

The free cash flow figure describes how much capital a company still has available after deducting operating costs and the like. This money can flow into new investments. It is therefore particularly interesting for potential tenbaggers that are not yet making a profit. 

A high free cash flow generally indicates financial health and great growth potential. We gain additional insights by comparing ourselves with other companies in the same sector. 

Qualitative view

To find tenbaggers, it is not enough to just look at the "hard facts". In addition to the key figures, it is also important to look at qualitative characteristics such as the state of the industry, the market power of the company or the rate of innovation. Peter Lynch looks at the following five aspects: 

1. new technology

Innovation not only drives our progress as a society, but also the stock market. It is therefore hardly surprising that tenbaggers are (almost) always so successful thanks to new technologies. 

However, Peter Lynch makes an important qualification here: New technologies by no means have to be high-tech products! It is more important that there is a broad customer base for the innovations, that they are easily accessible to new users and that they offer real added value/customers actually use them. 

2. social megatrends

Climate change, artificial intelligence, digital transformation ... social megatrends are shaping and influencing people around the world. The majority of particularly successful stocks are active in precisely these areas and are driving these trends forward or have even started them. 

• A potential tenbagger does not have to be involved in shaping such trends; it is sufficient if the company benefits directly from these developments or if its products are necessary for such a change. The megatrends of cryptocurrencies and AI have turned Nvidia, for example, into a tenbagger over the last ten years. 
• It is also important to differentiate between genuine megatrends and short-term fads. For example, MP3 players such as Apple's successful iPod were at first glance just a passing phase; however, the underlying megatrend is the change in the way people consume music and other media: away from linear transmission and personal ownership towards streaming and on-demand offerings. 

Investors could easily have underestimated the importance of this trend and passed on Apple. They would have missed out on a clear tenbagger that could even become a real Blue Chip Share has developed! Comprehensive knowledge of the media and technology sector was necessary in order to grasp the breadth of this development. 

This example illustrates another important tip from Peter Lynch very well: only invest in areas that you understand!

3. legal framework conditions

The moral and ethical understanding of mankind is constantly evolving - and with it, legislation and regulations from the state! For example, public opinion on the subject of smoking has changed massively, resulting in restrictive new laws in many countries. 

• A tobacco company is therefore not an ideal candidate for a tenbagger, as the political headwinds could cause problems. Related areas, such as tobacco alternatives or cannabis companies, are also difficult to evaluate against this backdrop.

• Other areas, such as renewable energies, benefit greatly from general interest, which is also reflected in supportive legislation. A tenbagger does not necessarily need legal support, but current laws should at least not hinder the company. 

4. unique position and pricing power

In most cases, tenbaggers are so-called "moat" stocks. These companies dominate a market because their products are difficult or impossible for competitors to copy. 

The reasons for this can be high technical know-how (e.g. with graphics cards from Nvidia), an uncatchable image (e.g. with Apple products) or legal protection (e.g. through the patent on Viagra for manufacturer Pfizer). 

Companies that find themselves in such a privileged position have several advantages: they have little need to worry about potential competitors and can set their prices almost freely. This in turn ensures attractive growth and enables tenbagger status. 

5. new products

An excellent signal for a possible tenbagger is the offer of new products that serve the social megatrends. 

• The demand created by these global developments can help a company achieve the explosive growth it needs.
• A company must not only offer a new product, but also be able to scale production and marketing! Only if it can meet the demand is it possible to capture the new market before the emerging competition. 
• The infrastructure required for this can quickly pose considerable problems for small companies. In the search for a tenfold increase, small companies or start-ups can therefore often disappoint - even if they are marketing a seemingly outstanding product!

A very good example of the power of new products is Apple: with its iPhone - a new product at the time - it created the smartphone megatrend in the first place. It then met the resulting demand and multiplied its share price as a result. 

6. interest from other investors

When investors try to find tenbaggers, they often analyze very obscure stocks. Many people have the idea that only unknown companies can show such growth. 

In fact, the opposite is the case: tenbaggers are rarely insider tips, but almost always established companies with a track record of several years! These companies have significantly fewer unknown variables, which makes it easier for us to analyze them and deliver reliable results. 

Few indicators say more about potential than the interest of other investors. Since potential tenbaggers are no secrets, you should definitely pay attention to the tips of other investors. Signal services such as Traderfox oder das Social Trading provide valuable services. 

Find tenbaggers: Learn the value investing strategy! 

Tenbaggers have always fascinated investors. They are considered the "holy grail" of equity investment. Accordingly, some investors search intensively for such stocks. However, Peter Lynch, who coined the term tenbagger, recommends a different approach: 

• He does not consider the concentrated search for tenbaggers in particular to be advisable. 
• Lynch does not regard such stocks as an independent target, but as a reward for the good implementation of the value investing strategy. 
• He sees the following points as cornerstones: Investing in business models that we are familiar with, thinking long-term and putting companies through their paces before buying them.  
• According to the stock market guru, those who follow these rules may never find a tenbagger, but will be successful in the long term. 
• These statements are also consistent with the statistical probability of a tenbagger: as these only occur very rarely, it makes no sense to invest too much energy in the search.

This makes it all the more important to find outstanding stocks for your own portfolio. They form the basis for long-term success in value investing and are the most likely candidates for a tenbagger anyway!

Promising sectors: Where will the next tenbaggers be built?

Many tenbaggers come from sectors that are characterized by technology, megatrends or structural change. Artificial intelligence and the semiconductor industry are particularly well represented. 

They form the foundation of modern innovation and thus offer ideal conditions for shares with high potential to increase their value tenfold. 

Industry	Growth driver
Artificial intelligence	Automation, big data, deep learning
Chips & Semiconductors	Technological change, cloud, automotive industry
Biotechnology	New therapies, personalized medicine
Cybersecurity	Increasing attacks, cloud security

Artificial intelligence

The field of artificial intelligence is currently receiving by far the most attention on the stock markets. Investors looking for tenbaggers will find many exciting stocks with high profit expectations here 

• A study by the management and technology consulting firm Sopra Steria found that the global AI market will grow at an average annual rate of 19 % until 2028. 
• This corresponds to three times the growth forecast for the entire IT market in the same period. 
• In Germany, this figure is expected to rise to up to EUR 7.62 billion by 2030. 
• However, as with all potential tenbaggers, disappointments are also possible here: the overvaluation of AI companies is potentially critical. The AI bubble has already reached 10 times the volume of the dotcom bubble in the 2000s. 

Potential tenbaggers include innovative companies such as Nvidia, OpenAI and specialized AI start-ups that have made a name for themselves in the field of generative AI and automated processes. Studies underline that companies with a strong focus on AI grow significantly faster and enable high returns.

Nvidia: Tenbagger despite overvaluation?

NVIDIA (ISIN: US67066G1040) plays a central role in the AI boom. The company's graphics cards are required for almost all AI applications due to their computing power. 

The share price has already increased more than twenty-fold since 2015. This growth was initially driven by interest in cryptocurrencies. The AI trend, on the other hand, has only just begun and has investors hoping for a further tenfold increase. 

Nvidia is already one of the most valuable companies in the world today and is among the Magnificent 7 / the glorious seven. So there is a serious probability that your tenfold growth might not materialize. Nevertheless, it is an exciting share that could once again develop into a tenbagger. 

Semiconductors & Chips

The semiconductor industry is also characterized by strong growth: experts expect global demand for chips to increase exponentially over the next ten years as a result of the cloud, AI and autonomous driving, enabling the industry to achieve above-average returns. 

In 2024, the semiconductor market was worth around 500 billion US dollars. It will valuedthat this turnover will double by 2030 and will then amount to 1 trillion dollars. The industry continues to benefit from waves of innovation in areas such as AI hardware and high-performance computing. 

Broadcom (ISIN: US11135F1012) is one of the most versatile semiconductor companies in the world. In addition to chips for networks, cloud and AI, the company also has a strong software division, which was expanded through the acquisition of VMware.

Since 2010, the share price has increased more than twelvefold, while the dividend has increased almost twentyfold in the last ten years. The mix of technological advantage, acquisitions and stable earnings power makes Broadcom a solid but potentially explosive candidate for the next tenbagger status.

Biotechnology

Biotechnology benefits in the long term from megatrends such as demographic change, innovations in personalized medicine and new therapies such as mRNA. BioNTech in particular experienced enormous growth in the early 2020s thanks to the vaccine developed against the COVID-19 pandemic.  

In addition to corona and mRNA, so-called biopharmaceuticals, i.e. drugs produced using genetic engineering, are becoming increasingly important. They are no longer considered niche products, but have become a central component of modern therapies. 

In 2022, 59 % of new approvals were biopharmaceuticals, which underlines the strong relevance on the market.  

Vertex Pharmaceuticals (ISIN: US92532F1003) is regarded as an innovation leader in biotechnology. The US company specializes in therapies for genetic diseases and is working on pioneering approaches in gene and cell therapy.

Since 2010, the share price has increased more than six-fold and sales have risen at the same time. With promising clinical studies and a clear focus on future technologies, Vertex has the potential to become a real tenbagger.

Cybersecurity

Driven by the global increase in cyberattacks and digitized business processes, the demand for suitable security solutions is growing. This is also illustrated by the current market forecast from Verified Market Reports. 

It is estimated that the global cybersecurity market could be worth around 203 billion US dollars in 2024. It is even expected to increase to around 507 billion US dollars by 2033. 

This corresponds to a more than doubling of the market volume in less than ten years. 

The forecast compound annual growth rate (CAGR) of 10.4 % for the period 2026 to 2033 is particularly noteworthy. A double-digit CAGR over several years is considered a strong growth signal for the IT security sector.

CrowdStrike (ISIN: US22788C1053) is one of the leading companies in the field of cloud-based cybersecurity. The platform detects threats in real time using machine learning and is particularly valued by large companies worldwide. Customer loyalty is also considered to be very high.

Since the IPO in 2019, the share price has risen by more than 700 % at times. Due to growing cyber threats and a continuously increasing number of subscriptions, CrowdStrike remains a potential tenbagger candidate.

Conclusion: Tenbagger search can be optimized, but success is not guaranteed

Tenbaggers are shares that increase their value at least tenfold in a relatively short period of time. This enormous growth is an absolute exception on the stock markets. It is therefore difficult to reliably identify such stocks. 

However, the inventor of the term, stock market guru Peter Lynch, has compiled some helpful tips in his books that can be used to identify such a winner at an early stage. 

Tenbagger companies are characterized by the use of new technologies and new products with which they (co-)shape social megatrends and serve the emerging demand. In doing so, they almost always benefit from favorable legal framework conditions. 

In addition, other investors also show an interest in such shares. They are therefore rarely the real insider tips that some investors like to think they are. As a rule, they already have an impressive track record. 

Key figures such as free cash flow, sales growth and price/earnings growth give us additional insights. 

Despite all the tips and tricks, there is no guarantee that you will actually find a tenbagger. But that doesn't matter: the Funamdental analysisthat you need to perform during the search will help you to find high-quality shares for your Equity portfolio to find. Even if you never see a tenfold increase among your stocks, the work will benefit your return!

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