# Small-Cap Multibaggers Beat the Market by 37.7% a Year

Cite as: Gorak, R. (2026). Small-Cap Multibaggers Beat the Market by 37.7% a Year. Tradicted. https://www.tradicted.com/research/yartseva-multibagger-2025/
Paper: Anna Yartseva — *The Alchemy of Multibagger Stocks: An empirical investigation of factors that drive outperformance in the stock market*
Published in: CAFE Working Paper No. 33, Birmingham City University (2025)
Original: https://www.open-access.bcu.ac.uk/16180/1/The%20Alchemy%20of%20Multibagger%20Stocks%20-%20Anna%20Yartseva%20-%20CAFE%20Working%20Paper%2033%20(2025).pdf

Key finding: Small-cap multibagger stocks (market cap below $250 million) outperformed the S&P 500 by 37.7% annually, compared to 14.5% for mid-cap and 9.7% for large-cap multibaggers, in a sample of 464 U.S. stocks that increased at least tenfold between 2009 and 2024.

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A multibagger stock is a stock that increases in value several times its original price, with a "ten-bagger" referring to a tenfold price increase. Yartseva (2025) presents this analysis in *The Alchemy of Multibagger Stocks: An empirical investigation of factors that drive outperformance in the stock market*. The study analyzed 464 multibagger stocks using S&P Capital IQ data covering 11,600 company-year observations from 2000 to 2024. Small-cap stocks (below $250 million) outperformed the S&P 500 by 37.7% annually, versus 14.5% mid-cap and 9.7% large-cap. Free cash flow yield emerged as the strongest driver of multibagger returns beyond the traditional Fama-French factors.

## What the Study Found

Small-cap multibagger stocks outperformed the S&P 500 by 37.7% annually in portfolios sorted using 2000-2024 data, versus 14.5% mid-cap and 9.7% large-cap. High book-to-market (value) multibagger stocks generated a 34.7% annual excess return, compared to 14.5% for medium-value and 12.8% for low-value stocks. A 1% increase in book-to-market or FCF/P ratio raised future share price return by 7% to 52% across all model specifications. An investment dummy, equal to 1 when asset growth exceeds EBITDA growth, reduced next-year returns above the risk-free rate by 4 to 11 percentage points. A rising Federal Reserve interest rate depressed next-year multibagger stock returns by 10.1%.

> "The findings indicate that several traditional Fama-French factors, including size, value and profitability, remain significant predictors of future multibagger returns: small-cap high-value high-profitability stocks outperform."
>
> Yartseva (2025), *The Alchemy of Multibagger Stocks: An empirical investigation of factors that drive outperformance in the stock market*, p. 1.

## Methodology

The study uses total share price return data for all NYSE- and NASDAQ-listed companies, including ADRs, sourced from the S&P Capital IQ database. The sample consists of 464 firms that increased in value at least tenfold between 2009 and 2024, covering 11,600 company-year observations from 2000 to 2024. The dynamic panel model controls for lagged size, value, profitability, and investment factors, plus market return, the risk-free rate, and an interest-rate-environment dummy. It is estimated with Arellano-Bond and system GMM estimators on data from 2000 to 2022, with 2023-2024 reserved for out-of-sample forecasting.

## Key Statistics

| Metric | Finding | Context |
|---|---|---|
| Small-cap excess return | 37.7% annually | vs. 14.5% mid-cap, 9.7% large-cap; 2000-2024 sorts |
| High-value excess return | 34.7% annually | vs. 14.5% medium-value, 12.8% low-value |
| Investment dummy effect | -4 to -11 percentage points | next-year return above risk-free rate, when asset growth exceeds EBITDA growth |
| Interest rate effect | -10.1% | next-year return when the Fed rate is rising |
| Value/FCF yield effect | +7% to 52% future return | per 1% increase in book-to-market or FCF/P ratio |
| Share price decomposition | P̂ = EPŜ + P/Ê | share price growth = EPS growth + P/E multiple expansion |

## Aggressive vs Conservative Investment Portfolios

| Measure | Aggressive Investment | Conservative Investment |
|---|---|---|
| Excess return, weak profitability, low B/M | 24.6% | -5.4% |
| Excess return, weak profitability, medium B/M | 21.7% | -2.1% |
| Excess return, weak profitability, high B/M | 33.4% | 23.6% |
| Average year-on-year asset growth | +40.0% | -6.8% |

## Why This Matters

The results suggest that a company's ability to fund growth internally matters more than the scale of its investment. Aggressive asset growth only hurts returns once it outpaces earnings growth. For investors building stock screens, combining small size, high book-to-market value, and strong cash flow generation looks more informative than screening on earnings growth. The interest-rate sensitivity of multibagger returns points toward adjusting exposure to growth stocks around the monetary policy cycle rather than holding a static allocation.

## FAQ

### What is a multibagger stock?

Yartseva (2025) studied 464 U.S. multibagger stocks that increased at least tenfold in value between 2009 and 2024. A multibagger stock is a stock that increases in value several times its original price, such as a ten-bagger that grows tenfold. The study identified the fundamental, technical, and macroeconomic factors behind their outperformance.

### What role does momentum play in predicting multibagger stock returns?

Momentum reverses quickly for multibagger stocks: 3-month and 6-month price momentum are consistently negative predictors of next-year returns. 1-month momentum is positive but significant in only one model specification. The price range variable, measuring closeness to the 12-month high, is also negative and significant.

### Do traditional Fama-French factors predict multibagger stock returns?

Traditional Fama-French size, value, and profitability factors remain significant predictors of multibagger returns, with small-cap and high-value stocks outperforming by 37.7% and 34.7% annually, respectively. Earnings growth, treated as essential in practitioner literature, was statistically insignificant across all dynamic model specifications tested.

### What is free cash flow yield and why does it matter for multibagger stocks?

A 1% increase in free cash flow yield (FCF/P) was associated with a 7% to 52% increase in future share price return for multibagger stocks. FCF/P measures a stock's free cash flow relative to its price and was found to be one of the strongest predictors of future multibagger returns.

## Source

Yartseva, A. (2025). The Alchemy of Multibagger Stocks: An empirical investigation of factors that drive outperformance in the stock market. CAFE Working Paper No. 33, Birmingham City University.

[Read the full paper →](https://www.open-access.bcu.ac.uk/16180/1/The%20Alchemy%20of%20Multibagger%20Stocks%20-%20Anna%20Yartseva%20-%20CAFE%20Working%20Paper%2033%20(2025).pdf)