I am looking for high-growth stocks that have the potential to be multibaggers and world-changing companies over the next couple of decades. I hold for the long term and rarely sell. What I look for in a company (thread):

First, I look at the company’s mission statement. I am looking a for a company with a mission statement that is simple, inspirational, and leaves a lot of room for optionality (Ex: $AAXN - “to protect life” or $SHOP - “to make commerce better for everyone”)

Next, I look at the company’s moat, or what gives it an advantage over the competition. There are multiple different kinds of moats that a company can have:

(1) Network Effects: a company has a strong network effect when it becomes more valuable in each additional user it adds (Ex: $ETSY - as more and more people shop on Etsy’s platform, more and more craftsmen are enticed to list goods on there, which draws more buyers and so on)

(2) High Switching Costs: a company has high switching costs when it would be difficult for users to switch away once they engage with the company (Ex: $TWLO - Twilio’s technology is very difficult to replicate and thus would be costly for a company to develop on their own)

(3) Cost Advantage: a company with a strong cost advantage has a clear leg up over new entrants; this could be through extreme scale, producing goods at a lower cost, etc. (Ex: $AMZN - in e-commerce, Amazon’s massive scale and distribution network give them an advantage)

(4) Assets: for most companies, this is simply a measure of how strong their brand is; other assets include patents and government protection (Ex: $GOOG - the word “Google” is essentially synonymous with the internet at this point, giving them an invaluable asset)

Finally, I look to see if the company’s moat is growing relative to the competition (Ex: $MELI - MercadoLibre continues to be at the cutting edge of e-commerce in Latin America, even adding a payments wing to bolster its growth)

After the moat, I examine the company’s potential for growth, looking at multiple different factors:

(1) First, I look at the company’s optionality; essentially, I am looking to see if the company has an innovative culture and the potential for new products or industries (Ex: $FB - Facebook has social media platforms, WhatsApp, and is involved in VR and increasingly e-commerce)

(2) Next, I want a company that is an unquestioned leader in its industry, $AAXN, the first to do what it is doing, $TMDX, and/or offering a disruptive disruptive technology in a growing industry, $DOCU; ideally, a company has all three of these characteristics, like $NFLX

(3) Finally, I want a company with rapid revenue growth (>25%) opportunities abroad, and a loyal customer base/customers that love it. Essentially I want a company with an open runway for growth.

After potential, I look at the company’s financial statements. Ideally, I am looking for a company with lots of cash, little or no debt, and strong, positive free cash flow (Ex: $AAPL - tons of cash, little debt, and positive free cash flow)

In addition, the best companies have high rates of return on equity (>20%), growing free cash flow, and growing earnings per share. However, many high growth companies lack these features until they are more mature (look at $AMZN growth!!) so this is not a deal-breaker.

Next, I look at the company’s customer acquisition. I look to see (1) if they easily acquire customers or if they have high sales and marketing costs and (2) if their customers will continue to purchase their products, even in bad times, like $COST customers would

Next comes the company management and culture. The best companies are founder-led, $AMZN, have high levels of insider ownership, $SSTI, have great CEO ratings on http://glassdoor.com , $MDB, and have great employment ratings on http://glassdoor.com , $HUBS.

When a company does not have good Glassdoor ratings, it gives me serious pause, even if I like the company otherwise - $CHWY or $FOUR. I want a company with a management and culture that I’m comfortable putting my money behind.

Finally, I look at the stock’s performance. I want a stock that has beaten the market over the last couple of years, has shareholder-friendly actions, and consistently beats expectations (these metrics can be harder to track for a company that recently IPO’d)

There are also some factors that can negatively impact my pereception of a company:

(1) Customer Concentration: when a company’s revenue and continued success is largely tied to a few key customers (don’t want anything over 10%, although many young companies have this and eventually grow out of it); examples: $SSTI or $EVER

(2) Market Loser: companies that have continuously lost to the market over time typically don’t make very good growth investments (unless there is a compelling reason that they will turn their performance around); $JMIA or $UBER are examples of this

(3) Risk of Disruption: as a long-term investor, I don’t want to invest in companies whose industries have significant risk of disruption - $F or $XOM

(4) Outside Control: I am also concerned by companies whose success is reliant on factors outside of their control, such as government spending or a strong economy in order to be successful - ex: $SSTI largely sells to cities right now, so they rely on government spending

(5) Anti-Trust Concerns: $AAXN, $GOOG, $AMZN, etc.; not too worried about this one, as this typically demonstrates the company’s strong moat and leadership, but it is just worth noting

(6) Fragile Balance Sheet: lots of debt and little cash with unclear future - $JMIA, $CVNA

(7) Reliance on a Single Event: if a single patent rejection or lawsuit could entirely change my perception of the company, I don’t want to be invested; examples are young biotechs

(8) High Levels of Dilution: not a deal-breaker, but ideally not happening - $SQ, $ROKU, $DOCU

(9) International Risk: it is also worth noting when companies have significant currency risk - $STNE - or are based in a developing country or a country that has trade issues with the U.S. $BABA or $PDD

(10) Growth by Acquiring: would prefer an innovative culture

THE BIGGEST FACTOR: Overall, however, my #1 thing I look for in a company is recurring revenue. I want companies that keep customers coming back through subscriptions, $DDOG, or transactions, $MA. These companies often have strong pricing power and a defensible future.

This framework for investing comes largely from lessons I have learned from @BrianFeroldi @TMFStoffel @DavidGFool @dannyvena and @saxena_puru. I cannot thank these wonderful investors enough for all the lessons that they have taught me and continue to teach me every day!