Whenever you hear or read about someone making spectacular capital gains from an investment, what are your first thoughts? Do you think that perhaps they got lucky with an AIM-listed mining company or maybe a tiny pharmaceutical firm thats just had a breakthrough with a miracle cure?
Go forth and multiply
Seasoned investors are already aware of the potential to multiply the value of their holdings with smaller fledgling companies, yetat the risk of losing everything if things go pear-shaped, which they often do. But what if I told you that two blue chips that currently grace the FTSE 100 have grown tenfold since December 2006. The first one is a software firm, not a new digital-age tech company, but surprisingly one thats been around for 40years. The second one will surprise you even more, but more on that later.
In September of this year, shares of UK-based software business Micro Focus International (LSE: MCRO) climbed to record highs as the firm announced an $8.8bn merger with US-based Hewlett Packard Enterprises software business. The deal is expected to be completed by the third quarter of next year after which Micro Focus will retain its name and listing on the London Stock Exchange. But shares in the Newbury-based firm were already flying high well before the merger was announced.
Micro Focus has certainly come a long way since its formation in 1976 when it focused on COBOL products for legacy systems. The company joined the stock market in 2005 and a year later investors were picking up shares for just 210p. This morning Micro Focus shares were changing hands at 2,164p, a rise of 930% in just 10 years. In simple terms that means a 5,000 investment would now be worth 51,524.
Thats great news for those who jumped onthe bandwagon early, but is Micro Focus still a good investment? Well, Wednesdays interim results certainly showed that the company isnt standing still, with a 14% rise in half-year revenues to $684.7m on a constant currency basis, and a 20.9% increase in underlying adjusted earnings to $320.3m. I believe Micro Focus is still a good long-term prospect given the continued earnings growth and benefits of the merger, but after a 44% rise since June, investors might want to wait for the next big dip before buying.
My second revelation is equipment rental firm Ashtead (LSE: AHT). The company rents a range of construction and industrial equipment across the UK, US and Canada through its Sunbelt and A-Plant segments. Maybe a little less glamorous than technology firm Micro Focus, but no less profitable. The companys shares have climbed from 153p in December 2006 to 1,614p at the time of writing, another tenfold increase, or a 10-bagger as we like to call it. A 5,000 investment exactly 10 years ago now being worth 52,745.
Ashtead is expected to continue with double-digit annual growth over the next couple of years, but with the shares soaring 69% since June, I would wait for the inevitable retracement before jumping in.
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Bilaal Mohamed has no position in any shares mentioned. The Motley Fool UK has recommended Micro Focus. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.