This Small-Cap Gem Could Be the Next 10-Bagger

UFP Technologies (NASDAQ: UFPT) is proof that niche-leading stocks remain a great stocked pond for investors to fish in when looking for multibaggers. UFP is a contract development and manufacturing organization focused on designing and making custom, single-use, polymer-based medical devices and packaging.

While this may sound somewhat unassuming, the stock's results have been brilliant. Over the last decade, UFP has been a 12-bagger, and since its initial public offering in 1993, the stock has been a 44-bagger. Despite this incredible run, UFP's market cap remains only $2 billion -- and that makes it my favorite small-cap gem with 10-bagger potential.

How UFP Technologies can keep multibagging

While UFP may be a small cap, it counts 26 of the 30 top medical original equipment manufacturers (OEMs) as customers. The company works alongside these OEMs, handpicking which product ideas it would like to develop, prototype, and manufacture with its equipment. The beauty of this model is that UFP can choose the highest-margin opportunities to pursue. Thanks to UFP's exclusive access to several medical-grade specialty materials and numerous patents, the OEMs are incentivized to make a reasonable offer or risk not finding a great alternative.

Image source: Intuitive Surgical.

Currently, UFP's largest business line is the robot-assisted surgical (RAS) drapery it makes for Intuitive Surgical. These drapes account for 29% of the company's sales and give it exposure to a booming RAS industry that is projected to double by 2029. UFP also makes medical surgery beds, revascularization devices, infection-prevention products, and more. It typically builds its portfolio of production capabilities through tuck-in acquisitions. Since 2021, UFP has made nine acquisitions while quadrupling its medtech sales, demonstrating a track record of success.

Despite these promising traits, UFP's stock has been flat over the past year, even though sales rose 26% during this time. This misalignment leaves the stock trading at just 25 times forward earnings -- a reasonable valuation for a company delivering 16% annualized sales growth over the last decade. At this valuation, I'll happily buy shares of UFP Technologies, my favorite small-cap pick to become a 10-bagger -- again.

Josh Kohn-Lindquist has positions in Intuitive Surgical and UFP Technologies. The Motley Fool has positions in and recommends Intuitive Surgical. The Motley Fool recommends UFP Technologies. The Motley Fool has a disclosure policy.