In share market investing, seeking to double your money over the short term is often a good way to lose the bulk of your capital as it forces you toward the higher risk, speculative end of the ASX. However, if you expand your time horizon to a decade, it becomes easier to identify businesses that have the capability to double over that time frame. While it is not an exhaustive list, some factors that help identify businesses that can double their revenue and profits include: The ability to expand without huge costs, A business model that can be scaled quickly,…
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In share market investing, seeking to double your money over the short term is often a good way to lose the bulk of your capital as it forces you toward the higher risk, speculative end of the ASX.
However, if you expand your time horizon to a decade, it becomes easier to identify businesses that have the capability to double over that time frame.
While it is not an exhaustive list, some factors that help identify businesses that can double their revenue and profits include:
- The ability to expand without huge costs,
- A business model that can be scaled quickly, and,
- A track record of doubling once or more already.
The three stocks on this list have these features, and those could be leading indicators of their ability to double in the next decade.
Retail Food Group Limited (ASX: RFG) has already gone from a small Gold Coast-based franchisor of bakeries and doughnut shops, to an international master franchisor of a range of brands from coffee shops to gourmet pizza outlets.
Retail Food currently has over 1,100 stores across its range of brands, primarily in Australia. Organic growth in franchisee numbers will continue to be driven by the defensive nature of the earnings from lower value convenience food retailers attracting franchisees, as well as the opportunities to roll the brands out overseas.
Growth can also be achieved by acquisition, and Retail Food has proven that it can identify and execute large scale transformative acquisitions, most recently with the Gloria Jean’s coffee brand, which added 800 stores.
It would not be unreasonable to think that a similar sized acquisition could take place in the coming years if Retail Food can identify a gap in its portfolio that it could fill with an existing brand. There are no shortage of strong franchise operations in Australia that could fit that criteria, from juice bars to stores offering healthy or themed lunch options.
Freelancer Ltd (ASX: FLN) is another business that could easily double on a number of metrics over a decade, and its ambitious founder, Matt Barrie, would likely view it as a failure if it did not do so.
Freelancer is essentially a digital jobs board that connects people and businesses that want tasks of all sizes completed to individuals who can complete them. These tasks can range from basic data entry, to logo design, to complex app coding or creative writing. Freelancer makes its revenue by taking a percentage of the value of all the jobs completed through its platform, and by charging subscription fees.
Freelancer has also expanded rapidly by acquiring competitors and complementary businesses. Over the longer term, Freelancer can double in size by increasing the number of jobs that are posted on its platform, which in turn will attract more high quality freelancers to perform them, which in turn, will attract more higher paid jobs.
Magellan Financial Group Ltd (ASX: MFG) is a business that has doubled in size by investing in other businesses that have the ability to grow substantially.
Magellan is a fund manager with a focus on international stocks, with a clear lean towards large-cap US businesses. That sees the flagship fund hold household names like Microsoft, Visa, PayPal and Apple, with over $7.7 billion under management as of March this year.
The flagship Magellan fund has grown by 10% per annum since 2007, and it is an interesting fact that an investment that grows by 10% per year, compounded, will double in just over seven years.
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Motley Fool contributor Ry Padarath has no position in any stocks mentioned. The Motley Fool Australia owns shares of Retail Food Group Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.