Small Cap Multibagger: How to Find Stocks with 10x Potential
•By Mahersaham Team
Artikel ini juga tersedia dalam Bahasa Melayu
Loading...
Many investors love chasing big stocks like tech giants. But in reality, many success stories come from small cap stocks – small companies with little coverage that suddenly surge when fundamentals shift. The US market is full of these hidden gems. It has happened time and again.
One of the most astonishing examples is Super Micro Computer, Inc. (SMCI). From a small company that once faced accounting issues, it has transformed into one of America's most remarkable stocks, soaring more than 4,000% since 2020.
This article will serve as your guide on how to identify small cap stocks with massive potential – by learning from the SMCI story. (This is a case study, not a buy recommendation.)
Less institutional attention – many small companies are not analysed by large firms.
Undervalued prices – the market sometimes fails to recognise their true potential.
Multibagger potential – when fundamentals improve, the share price can explode.
1. Look for Consistent EPS Growth
EPS (Earnings Per Share) is the clearest indicator of a company's performance. Focus on companies with EPS increasing over several consecutive quarters. Even better if EPS growth exceeds 20–30% annually.
Example: SMCI grew its net profit from USD84 million (2020) to USD285 million (2022), a leap of more than 238%.
2. Identify Industries That Are "Booming"
Small caps operating in trending industries have a significant advantage.
AI and cloud computing (for example, SMCI which became a server supplier for Nvidia, Intel, and AMD), 5G & high-performance computing, green energy / EV supply chain, automation & IoT. SMCI rose because it was positioned right at the intersection of the AI + 5G trend when the world began investing heavily in these technologies.
3. Evaluate Investment in R&D
Companies that consistently invest in R&D are usually able to maintain their competitive edge. SMCI allocated a substantial budget for R&D, and as a result, their server products became the preferred choice for data centres & AI applications.
4. Look for Fundamental "Catalysts"
Small cap stocks typically surge when there is a catalyst:
Entering new markets, securing contracts with major corporations & resolving legacy issues (example: SMCI recovered after its accounting problems & delisting). A sudden spike in global demand.
5. Use Systematic Analysis
Beyond reading reports, filter using a screener:
EPS growth >20%, positive revenue growth, profit margins better than competitors, consistently high ROE.
With a quantitative + fundamental approach, investors can avoid emotional bias and focus on data.
Origins: Founded in 1993, IPO in 2007, but was stuck as a small company for a long time.
Challenges: Faced accounting problems, was even delisted from Nasdaq.
Turning Point: The AI & 5G wave in 2020 pushed revenue from USD3.34 billion (2020) to USD5.2 billion (2022).
EPS Growth: Net profit surged +238% within 2 years.
Result: Share price exploded more than 4,000% since 2020.
SMCI proved that even starting small, when fundamentals and industry trends align, a stock can become a "rocket stock".
How do you find "the Malaysian version of SMCI"?
Use Bursa stock screeners – filter companies with strong EPS growth.
Focus on locally trending sectors – semiconductors, solar energy, EV, AI technology.
Check financial reports – make sure the growth is not a "one-off".
Monitor debt levels – avoid small companies that are excessively leveraged.
Look at R&D too – is the small company investing for the future?
The story of Super Micro Computer (SMCI) is the best example of how a small cap stock can become a multibagger. From a small company that was once overlooked, it is now a market star because of:
Strong EPS growth,
Being in a trending industry (AI & 5G),
Continuous investment in R&D,
Positive fundamental changes.
Investors who want to find big opportunities cannot only focus on giant corporations. Sometimes, hidden gems are found in small caps – just waiting for the right moment to explode.
A small cap multibagger stock is a share of a small company that has the potential to surge multiple times from its original price. For example, Super Micro Computer (SMCI) rose more than 4,000% since 2020, driven by strong fundamental growth in the AI and cloud computing industry.
Focus on consistent EPS growth exceeding 20-30% annually, companies in booming industries such as AI or 5G, continuous investment in R&D, and positive fundamental changes such as major contracts or expansion into new markets.
The main risks include low liquidity, less analyst coverage, and higher price volatility. Therefore, investors need to conduct thorough fundamental research and employ proper risk analysis techniques before investing.
Small cap stocks can deliver substantial returns but require deeper analytical knowledge. Beginner investors are advised to understand investment fundamentals first before attempting small cap stocks, and ensure they have a clear risk management strategy in place.
Want to learn techniques for finding small cap stocks with multibagger potential?
Open a CDS account via Register CDS Account with Mplus to start investing in Bursa Malaysia stocks.
New to stocks? Download our Free Stock Basics Ebook to understand investment fundamentals.
Further reading: