IN FOCUS6-8 min read

Small is beautiful: uncovering the Nordic 10-baggers

We look into the top performing companies in the Nordics, why they have outperformed their European peers and how they have reached 10-bagger status.

Panoramic view of Helsinki


Jan Brännback
Portfolio manager, Nordic equities
Janne Lähdesmäki
Portfolio manager, Nordic equities

The Nordic countries are known for repeatedly ranking top of the United Nations global ranking of happiest countries, but a lesser known fact is that the happiness seems to correlate with strong equity market returns.

Although we are not arguing that money buys you happiness, the strength behind the rankings on low corruption, state-of-the-art corporate governance, political stability and high share of the workforce with university education sets the scene not only for happy people, but also a solid foundation for building great businesses.

Looking at market returns, Nordic small caps have clearly outperformed most peers over the long term, something often over looked by the international investor.

What drives the strong performance of smaller Nordic companies? What are the typical traits of the strongest performing companies?

We have analysed the data on the top performing companies in the Nordics over the past decade, with a particular focus on 10-baggers. The 10-bagger term describes a stock whose value has increased ten-fold.

Performance vs European peers

Let’s start with a look at long-term index returns. Nordic small caps have posted an impressive 20-year return of 12.8% p.a. compared to 9.9% p.a. for European Small Caps and 7.0% p.a. for European Large Caps (source: Bloomberg: MSCI Nordic Small Cap TR: +1022% vs MSCI Europe Small Cap +567%. MSCI Europe: +268% Period: 30.12.2002-31.12.2022).

Given the wonders of long-term compounding, this equates to an outperformance of 455% and 739% respectively for the period in favour of Nordic small caps over their seemingly less cheerful European brothers.

Over the long term, equity market returns and earnings growth tend to show strong correlation. The case is no different here as the outperformance is underpinned by superior earnings delivery over the past two decades as illustrated below for both sales, earnings and free cash flow growth.

Chart showing long-term growth trends for sales, earnings and FCF for Nordic companies

As in most equity markets, the strong returns in Nordic small caps have been dominated by a limited group of companies posting outsized returns over time. As an example, a mere 3% of index names accounted for 40% of the gains made by positive stock contributors to the MSCI Nordic Small Cap index return for the 20-year period to end 2022.

This highlights the importance of active stock picking: being selective is the key to achieving high returns.

With market returns over time driven by a small set of companies posting outsized returns, let’stake a look at the top performers in the Nordic region over the past ten years. We find a number of clear commonalities across the space.

The makings of a Nordic ’10- bagger'

We’ve found 72 Nordic companies that have achieved the much lauded 10-bagger status over the past ten years – the data set including only companies listed for the full period.

Companies in the coveted 10-bagger club generated a total return in excess of 900% over the past decade.

Those 72 10-baggers represent a 10.6% share of Nordic stocks listed at the start of the period. The prevalence of strong long-term compounders clearly exceeds that of some other key markets.

Since 2012 the Nordic markets have grown significantly in breadth amidst a flurry of capital market activity foremost in the small and micro cap space. The astute stock picker now has the choice of no less than some 1650 listed companies across the region to find the winners of the next decadeahead (vs some 681 listed companies a decade earlier).

The odds remain stacked in favour of small and micro caps dominating the 10-bagger list when we reflect back in ten years, not least due to 9 out of 10 companies in the region falling into this market cap bracket.


From good to great

So, what common traits are there among these best performing stocks over the long term? Firstly, they almost without exception start small – with an average market cap of EUR 191 million and 85% of those companies having a market cap below EUR 500 million at the start of the period. In other words, investors need to dig into the small and micro cap end of the market to enjoy the full compounding potential of these best performing stocks.

Secondly, while coming from humble beginnings, the 10-baggers obviously grow considerably bigger over the period, with the median company posting a sales compound annual growth rate (CAGR) of 10% over ten years.

Thirdly, the companies post above-market and expanding gross margins, with 600 basis point (bps) margin expansion for a 50% gross margin for the median company at the end of the period.

Equally, the data set reveals growth being coupled with capital efficient business models, with a median return on invested capital (ROIC) of 17% in 2022. ROIC is a measure that gives a sense of how well a company is using its capital to generate profits.

This demonstrates the key ingredients for achieving long-term value creation, namely sustained sales growth over the long term coupled with the ability to re-invest into growing and strengthening the company, whilst maintaining a high ROIC.

Aside from growing earnings, the 10-baggers have received an added return driver from a valuation uplift. They’ve achieved this by showing consistency in their operational delivery over an extended period while transitioning from lesser known micro caps into mid and large caps with a larger investor audience.

Measured on enterprise value/sales the median 10-bagger company in our data set saw a valuation uplift of 9% p.a. over the ten-year period, to the end of 2022. The outcome comes regardless of a challenging 2022, which was an annus horribilis for small caps versus the broader market due to risk aversion.

Context matters, as does operating in growth industries. The best performing stocks were clustered in certain sectors, notably technology (32%), health care (22%) and industrials (15%) - with seven of the 10 top compounders found in these sectors.


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Jan Brännback
Portfolio manager, Nordic equities
Janne Lähdesmäki
Portfolio manager, Nordic equities


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