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Also known as a ten bagger, a tenbagger is a stock that increases in value ten times the original purchase price within a specific period of time. This thousand percent increase may take place over an extended period of time, or occur within three to five years. The goal of many investors is to identify stock options with the potential to generate this level of return within a specified time frame, often in less than ten years.
There is no set process or procedure to determine if a given stock option has the potential to become a tenbagger within a specific period of time. This leaves investors with the need to accurately project both the short-term and long-term performance of the investment, taking into account all known factors. Many investors will also attempt to allow for some type of possible but currently unforeseen circumstances that could either slow the rate of return or cause the performance of that stock option to move upward at an extremely rapid pace.
Many investors will look closely at investment opportunities associated with an emerging technology in hopes of identifying a potential tenbagger. Investors during the 1970s and 1980s who purchased shares issued by new computer companies at the time were able to invest relatively small amounts up front, ultimately watching the value of those shares increase rapidly as desktop and laptop computers became the norm in office and home settings. With the aid of continual stock splits and ever increasing demand for faster and more powerful personal computers, those investors were able to easily achieve increases that not only met the thousand percent growth rate that defines the tenbagger, but to continue moving beyond that level.
Not every new stock option has the potential to become a tenbagger. This is because some of those stock options are associated with a market that is somewhat limited in terms of growth. While the potential to produce a reasonable rate of return is there, stock options associated with smaller markets are rarely able to produce the abnormal return to qualify as a tenbagger. There are exceptions of new companies entering what is already considered a crowded market and experiencing rapid growth that allows investors to achieve these unusually high returns, with a few emerging retail giants being examples of this phenomenon during the last two decades of the 20th century. For this reason, many investors will look closely at new business to determine if they offer something that is a little outside the box, and has the potential to capture the attention and loyalty of consumers in numbers that are above and beyond the abilities of older and more established companies within that same market.