Image source: Getty Images
Stock market legend Peter Lynch coined the term “10-bagger” in his book One on Wall Street. This is a dividend that multiplies one’s original investment tenfold.
It is not uncommon for a stock to increase 10 times in value in one year. But there are plenty of examples of stocks that go up as much (or more) over time.
But how do I try to see the following? That is the theme I will explore here.
1,000 bagger!
Consider investing Amazon with an adjusted dividend of $0.16 per share in 1997. Or Nvidia shares at $0.164 traded in 2005. With each stock now at $224 and $134, the return could be substantial indeed.
Indeed, Amazon can be more than 1,000 bagger!
Believe it or not, these are real world returns The Motley Fool founder David Gardner.
Now, imagine he shared his investment framework that helps him find monster stock market winners… The good news is that he still has, over and over again.
The outline
According to Gardner, there are six factors to look for:
- The top dog and first mover in an important, emerging industry.
- Sustainable competitive advantage.
- Strong past share price appreciation.
- Idea management (usually founders).
- A strong brand (either business-to-consumer or business-to-business).
- It is extremely expensive in terms of financial resources.
Looking at my own portfolio, the best performing stocks (including a handful of top 10 baggers) have all or nearly all of these characteristics.
Here’s a stock that ticks these boxes, and one I’m considering buying in 2025.
Persistent green owl
The assignment I’m talking about Duolingo (NASDAQ: DUOL), the company behind the gamified language learning platform.
Founded in 2011, Duolingo was one of the early pioneers in app-based education. It is now the global leader (top dog), with 37.2m daily and 113.1m monthly active users.
According to Global Market Insights, the global language learning market is expected to reach approximately $317.3bn by 2032, up from $61.5bn by 2023. So this is a huge emerging market.
Since its listing in 2021, the stock has risen 144% (strong price), and is led by founder Luis von Ahn. He is a computer scientist who co-invented the website security system Captcha (very clever).
Strong brand? Definitely. Overvalued in general? The forward price-to-sales (P/S) ratio is about 16, so that’s another tick.
The company offers both paid subscriptions and ad-supported ‘freemium’ options. So another risk here is the emergence of an AI-powered competitor that offers advanced features for free that Duolingo currently charges.
But as a paying subscriber, coming out of my Spanish lessons with an 87-day streak under my belt, I have never seen better competitors. And in an age where parents worry about apps, Duolingo is one I’d be happy to see my daughter using every day.
As von Ahn says: “We want parents to feel happy about giving their children this app.”
What’s really interesting here is that Duolingo’s market cap is just $15bn. To me, that seems low for a leading company pursuing a $300bn+ market opportunity, with potential in every country in the world.
The app now offers math and music lessons, as well as 40+ different languages, including the legendary High Valyrian from. Game of Thrones.
I could be wrong, but I think Duolingo stock has what it takes to be a 10-bagger over time.
Source link
