Today, we’ll dive into the remarkable success story of Nick Scali ($NCK), a furniture retailer that’s delivered more than 10 times its value over the past 12 years.
Welcome to Getting Rich with Rich, where we will guide you through the strategies that help investors uncover potential 10-bagger stocks.
Even after a recent 15% dip, the stock has been a standout in the small-cap sector, and there’s much to learn from its journey.
So, how do you find the next Nick Scali?
Let’s explore the strategy I call the “three bites of the cherry,” which has proven effective in identifying small caps with massive potential.
The Nick Scali Story: Big Returns from a Small Cap
Nick Scali may have fallen 15% in the past few weeks, but its long-term success is undeniable. Since we first recommended it as a Buy 12 years ago, it’s returned more than 1,100%.
This isn’t just luck—it’s a company that has remained nimble and profitable, even in tough times.
Nick Scali focuses on a specific niche of consumers—those looking for ‘masstige’ quality furniture (affordable luxury).
What sets it apart is its vertical integration—the ability to control everything from design to manufacturing, allowing the company to adapt and thrive. For example, when transport or material costs rise, Nick Scali redesigns products to reduce reliance on more expensive components.
This flexibility has helped maintain strong profit margins while minimizing working capital and inventory levels. The stores essentially operate as showrooms, with products built to order.
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How to Find the Next Nick Scali: The “Three Bites of the Cherry” Strategy
The key to finding the next big winner in small caps lies in a strategy I’ve coined “three bites of the cherry.” Here’s how it works:
- First Bite: The Survival Boost
In the early stages, small caps often face tough challenges. Nick Scali proved it could survive, even with big overheads like leases, by showing profitability from the start. The survival phase is when a small cap shows it has staying power and the potential for growth. - Second Bite: Profit Growth and Re-Rating
This is where the real magic happens. Once the company consistently grows profits, the market takes notice, and the stock enjoys a double whammy—both earnings growth and a re-rating of its valuation multiple. This was the stage when Nick Scali really started to shine. - Third Bite: ETF Effect
As companies grow, they eventually get noticed by major indices like the S&P/ASX 300. When that happens, index-linked funds are forced to buy the stock, giving it a further boost. This is when you see stock prices soar as institutional investors pile in.
These three stages are critical in spotting small caps with the potential to return 10-fold or more.
And remember the bonus! One in five small caps gets taken over, adding yet another potential windfall for investors.
What’s Next?
Looking for the next 10-bagger involves identifying companies in their early stages, just like Nick Scali, Austal ($ASB), and NZME ($NZM) were when we first tipped them. These are companies that started small but maintained a small-cap mentality even as they grew. They focus on profitable niches, maintain strong margins, and minimize risk.
At Under the Radar Report, we regularly feature Best Stocks to Buy Now, where you’ll find the next potential big winners. So, keep an eye out for future Nick Scalis and get ahead of the curve with our expert insights. Our Best stocks to buy now is for members only. Please Join Now to access our top picks.
Stay tuned as we dive into the gold sector next, where we’ll cover which gold stocks to buy and which to sell. There’s always a new opportunity on the ASX, and we’re here to help you find it.
