Market Memos · What a story stock actually is
The Ten-Bagger Arithmetic
Three numbers decide whether a great story makes you money. Only one of them is the story.
Start with what you're actually buying
A story stock is a company priced on a future that hasn't happened yet. You aren't paying for what it earns today — often it earns nothing. You're paying for a belief about what it will earn in five years, and for the chance that other people come to share that belief and pay more than you did.
That second half is the part almost everyone forgets, and it's where most of the money is.
What "the multiple" actually is
Every public company has two numbers hanging off it: what it sells in a year, and what the whole company is worth. Divide the second by the first and you get the multiple — what the market will pay today for one dollar of this company's annual sales.
Take Lululemon, measured at 4 September 2026. It sold about $11.1 billion of clothing in its last full year, and the whole company was worth about $11.1 billion. The market was paying $1.00 for each dollar of sales.
Three years earlier it sold $9.6 billion and the company was worth $62 billion. The market was paying $6.43 for each dollar of sales.
Nothing about the clothing changed. What changed is what people would pay for it.
The multiple is not a fact about the company. It is a fact about the mood around the company — and it moves far more violently than the business ever does.
What moves it: how fast people think sales will grow from here, how confident they feel about that, and what else they could do with the money instead. Interest rates matter. Fashion matters. A single bad quarter matters.
So a return is two things multiplied
Sales grow. The multiple changes. Multiply those two and you have the change in what the company is worth. Three real examples — two of them the same company.
| Company and period | Sales | Price per $1 of sales | Company value |
|---|---|---|---|
| Chipotle 2006 → 2024 |
×13.7 $0.8B → $11.3B |
×3.2 $2.26 → $7.27 |
×44 both engines firing |
| Chipotle 2024 → Sept 2026 |
×1.06 $11.3B → $11.9B |
×0.52 $7.27 → $3.74 |
−46% sales still grew |
| Lululemon end 2023 → Sept 2026 |
×1.15 $9.6B → $11.1B |
×0.16 $6.43 → $1.00 |
−82% sales grew every year |
Read the bottom two rows again. In both, the business got bigger. Chipotle sold more burritos in 2025 than in 2024 and the company was worth 46% less. Lululemon grew revenue every single year since it listed — and was worth 82% less than at the end of 2023. Nothing went wrong at the till. The market simply changed its mind about what a dollar of those sales was worth.
Being right about the company is not the same as making money on the stock.
Why the multiple moved
It is almost never the sales number. It is the direction of the sales number. Here is Lululemon's revenue growth, year by year:
| Fiscal year | Revenue growth | What the market paid per $1 of sales |
|---|---|---|
| FY 2022 | +29.6% | $6–7 |
| FY 2023 | +18.6% | |
| FY 2024 | +10.1% | |
| FY 2025 | +4.9% | $1.00 |
Sales never fell. The growth rate fell, by roughly half, twice in a row. The multiple went with it — because the multiple was never paying for this year's sales. It was paying for the promise of next year's.
You are not buying the business. You are buying the market's estimate of how fast the business will grow — and that estimate can be revised by 80% while the business carries on exactly as before.
Which is why it's worth screening for growth that is accelerating rather than growth that is merely high. High-and-slowing is the chart above. It is the single most expensive shape in investing, because it looks like a bargain the whole way down.
And a third number, which is only about you
Sales and the multiple decide what the company is worth. One more decides what your share of it is worth: how many shares exist.
If a company doubles its sales but pays for that growth by issuing 50% more stock, your slice shrank while the pie grew. The company did well. You did much less well.
Neither company above has that problem — both are large and profitable and have been buying stock back, which quietly works in the holder's favour. Lululemon's share count went from about 121 million to about 111 million over the period shown, which is why the share price fell 80% while company value fell 82%.
But small companies with big plans fund those plans by selling stock. Which is why "how much has the share count grown in three years" belongs at the very front of any small-cap screen — before growth, before price strength, before anything.
Most stocks don't run
In any given stretch, most stocks go nowhere much. A minority make the kind of move worth owning, and they don't announce themselves in advance. That is the whole difficulty, and no amount of method removes it.
But notice what the job actually is. We are not trying to own the next Chipotle for eighteen years. We are trying to be in a name while it runs, and out when it stops. Those are different activities with different failure modes.
The permanent-owner's risk is picking a company that eventually fails. Ours is staying in one whose run is already over.
A company can run hard and then die. TCBY ran, and doesn't exist now. Both facts are true, and only one of them mattered to somebody who owned it during the run and left when it ended.
This is why nearly every statistic you'll see quoted about long-run stock returns is measuring something else. Those studies compute what a share was worth from its first day of trading to its last — a holding period of decades, through the run and out the other side. It is a real finding about buying and holding forever. It says almost nothing about catching a move and leaving.
So the honest framing isn't "most stocks lose money." It's narrower and more useful: the runs are real, they're a minority, and the money is made by being in one and then getting out. The exit is not the boring half of that sentence. It is most of it.
What that changes
- The skill is cutting, not picking. If one name in ten works, nine decisions out of ten are exit decisions. Everyone wants to talk about how they found the winner. The people who actually make money are better at abandoning the other nine early and cheaply.
- No screen finds the story. Screens find evidence the story is being believed — revenue growth accelerating, price strength rising, institutions buying, share count flat. None of that predicts anything. It tells you other people with money have already noticed. That's a real edge and a lagging one: you are never going to be first, only early-ish and disciplined, which is a different and more achievable goal.
- Share count is the quiet killer. A company issuing 20% more stock every year has to more than double the business just to hold your position still. Nobody checks it.
- You will remember the winners and forget the rest. Every list — the IBD 50, the buy lists, any screen output — shows what is working right now. None of them shows the names that looked identical eighteen months ago and then broke. That absence makes every method look better than it is.
And why this is a stock hunt, not an options hunt
A story stock is, by definition, a company people disagree violently about. That disagreement shows up in the options market as high implied volatility — the options are expensive. Which cuts both ways, badly in both directions if you aren't deliberate.
| Buying | You pay up for that volatility, so the stock has to move a long way in your direction before you break even. Usually the wrong underlying for a debit spread. |
| Selling | The expensive premium is tempting — but the reason it's expensive is that these names gap. A trial result or an earnings print can move them 30% overnight, straight through a short strike. |
Hunt story stocks for the stock account. Bring them near the options account only on purpose, and only with the risk defined.
As for where the candidates come from in the first place — and how much to believe each source: Sentiment Reads. The wider set of screeners, calendars and research feeds is in Where To Look.
