In 2005, 450 sheep jumped to their deaths, according to USA Today.
One sheep dove. Another followed. All of a sudden, a flock of sheep began jumping off a cliff for no real reason. Shocked shepherds would watch as another 1,500 jumped.
Many of the sheep unfortunately died.
All of those sheep were caught up in herd mentality
They jumped because all of the others jumped. And as uncommon as this may sound, it’s not. In fact, this very same thing happens each and every day among traders and investors.
We buy because everyone else does. We sell because every one else is.
We ignore the same stocks because every one else is.
But we never question what we’re really buying or selling, which can be quite costly. Sometimes, the best stocks are those that the herd won’t touch.
In short, traders and investors act like blind sheep.
Look at EnviroStar (EVI) for example.
The company distributes commercial, industrial and vended laundry and dry-cleaning equipment and steam and hot water boilers through the United States.
It’s not the most exciting company in the world. But fundamentally, it was. And those very fundamentals were being ignored. All because EVI appeared to be a boring, “go nowhere” stock.
But that would be costly for those that ignored it.
In early 2013, this small, boring company began reporting that that quarterly revenue had just soared 29.4% to $6.44 million year over year. Net income had skyrocketed 713% to $125,155, or two cents a share from $15,396 year over year. In short, this company was no stranger to growth.
Better yet, it traded at just $1.60 a share at the time.
Yet, even with improving fundamentals, it was left for dead
Over the years, interest grew, as did quarterly revenue and net income. So much so, the stock finally hit a hit a high of $48recently for a potential gain of 2,900% shortly after reporting that revenue soared 177% to $26.3 million. Operating income was up 74% to $1 million.
Net income jumped 60% to $600,000, as adjusted EBITDA increased 169% to $1.6 million.
Granted, the stock recently hit a rough patch, and plunged, but by looking under the hood of a small cap stock, you had the opportunity to make as much as 2,900% in five years.
In short, even the most boring stocks in the world have a story to tell.
If you take the time to understand its business and perhaps uncover fundamental strength, as EVI exhibited, you may have just uncovered the next 2,900% winner – with patience, of course.