Often, it is a company’s ability to see a way to capitalize on wider changes that leads to huge growth. Dell didn’t invent the PC, they had the foresight to see a fast growing market and exploit it.
One major change in recent years has been the discovery of huge reserves of shale gas. One company set to exploit a potential major change in energy usage is Westport Innovations Inc. (USA) (NASDAQ:WPRT). Westport manufactures specialized parts that enable diesel burning engines to be replaced by engines using natural gas. Westport Innovations Inc. (USA) (NASDAQ:WPRT) has a market capitalization of $1.6 billion, and following our standard margin and P/E assumptions, would need to increase both its market cap and revenues to $160 billion to be a 100-bagger.
Westport recorded revenues of $155 million with 1,956 units shipped in 2012. On a pro-rata basis, a $160 billion turnover would require sales of some 2 million units. According to Power Systems Research, the world market for diesel engine vehicles (excluding cars) was 12 million vehicles in 2012. With a 16% market share, Westport would make the 2 million target.
We appear to be in the right ballpark. I think some of these numbers need some work. For example, the revenue per unit using a pro-rata approach seems far too high. But the purpose of this broad-brush approach is not to produce a highly accurate answer. Instead we are looking to see whether we have any chance of coming close to our objective. As far as accuracy goes, by assuming, say a P/E of 20 and a margin of 20% we could reduce our required turnover by a factor of 4.
So, yes, Westport is a candidate for a 100-bagger stock. Many things would need to be just right for this to be the case. But the best thing we can do as investors is to identify stocks that have a possibility of succeeding and add a few of these to our portfolio.
Please remember that any stock with a high gain potential is also likely to have a significant potential for a total loss. All of the stocks discussed have a high level of short interest. (And please don’t dismiss any because they are not potential 100-baggers; 5-bagger is very good!)
Westport is my suggestion, but any well run business with a small share of a large potential market can be a 100-bagger. If you have time, seek out Lynch’s list – it throws up a few surprises.
If you have a low-risk tolerance, seeking the 100-bagger may not be for you as a few painful losses may be unavoidable.
But if you are up for the hunt, finding a small place in your portfolio for Westport may be a good place to start.
Ian Richards holds stocks in LNKD, TSLA, DDD and WPRT. Ian also holds long calls in TSLA and WPRT and has sold puts in TSLA and WPRT. The Motley Fool recommends 3D Systems, LinkedIn, Tesla Motors, and Westport Innovations. The Motley Fool owns shares of 3D Systems, LinkedIn, Tesla Motors, and Westport Innovations and has the following options: Short Jan 2014 $36 Calls on 3D Systems and Short Jan 2014 $20 Puts on 3D Systems.
