The Secret Behind Finding the Next Tesla Inc Stock

I still remember when Tamara Walsh -- a former Fool -- first brought up the idea of investing in Tesla (TSLA -0.05%). It was 2011, and the company was valued at just $4 billion. “Silly Tamara,” I though, “electric cars will never be profitable. And even if they are, they’ve got to compete against the Big Boys. How could they ever win?”

There were a lot of problems with my response -- the least of which is a 1,400% return I missed out on. But even bigger is the fact that I didn’t reference what I have now come to think is the single greatest window into the soul of a company: it’s mission statement.

Image source: Getty Images

If I had taken a look at Tesla’s corporate page, I would have seen this :

Tesla’s mission is to accelerate the world’s transition to sustainable energy.

That’s the most recent version of statement that’s had tweaks over the years, but remains essentially the same.

What’s in a mission statement?

As part of a group of Motley Fool investors that participate in special projects for our paying customers, I’ve developed a framework for how to evaluate companies. One of the eight metrics that I assess is the company’s mission statement.

At first, I thought this was a rather mundane task, but over time, I’ve come to see it as a powerful differentiator between the mediocre companies -- and investments -- and the world-beating ones.

Specifically, I’ve found that the very best mission statements all have three things in common:

1. They are simple and clear: an employee who has to make a tough business decision could reference the mission statement to help.

2. They are inspirational: the company’s reason for being is about much more than making money.

3. They are optionable: in other words, there are many potential avenues the company could take to fulfill its mission, allowing employees a level of creativity.

Take a look at Tesla’s, and you’ll see that it has all three: it’s only eight words long, and yet conveys a powerful, eco-friendly message that goes far beyond cars. It also helps us to understand the company’s acquisition of Solar City, the development of battery packs, and its Giga-factories.

Proof abounds

There’s ample proof that the world’s most important companies all have mission statements that share these traits. Take a look at the average annual (CAGR) return of these three since going public, and how their mission statements fit the criteria above.

Data sources: Company websites. Author’s calculations on returns using data from Google Finance. *Facebook recently changed its mission statement

No doubt, I’m cherry-picking the most convincing examples. Obviously, we can find cases of great investments that didn’t have great mission statements, and visa versa. You need to evaluate how well a company is executing on its mission to begin with.

At the same time, in a world where you have thousands of possible investment choices, why not side with the ones that fit these three criteria. Even if they miss the mark and don’t fulfill their mission, you’ll have a far smaller pool from which to draw potential candidates for your hard-earned dollars.

Three smaller companies for you to consider

But I don’t want to just tease you with a secret for how to find the next Tesla, I want to offer up the names of three smaller companies that I’m personally invested in. All have visionary mission statements.

Data source: Company web pages

Axon was previously known as TASER International. But following their mission statement, they branched out from stun-guns and entered the body camera market. The cameras themselves aren’t anything that the competition can’t offer, but the company’s Evidence.com platform for storing the footage -- and added AI features to analyze that data -- make switching costs very high.

Shopify has developed a booming platform for small and medium-sized business to set up an e-commerce presence. But the company hasn’t stopped there, realizing that by offering merchant solutions (think: logistics) it could help make commerce better for its customers. Most importantly, CEO and founder Tobias Lutke has had the veracity of the mission tested mightily by those suggesting he dump companies with controversial businesses -- and he has passed the test with flying colors.

Finally, it might seem like Intuitive Surgical’s mission statement is too narrow -- “benefits of minimally invasive surgeries” -- to be considered optionable. But the number of procedures that can be improved upon by using the company’s daVinci robots grow by the year. For a long time, prostatectomies and hysterectomies were the sole uses for the machines. But lately, hernia and colorectal procedures have exploded -- benefitting Intuitive, its shareholders, and patients.

I don’t think mission statements alone should be the litmus test for a good investment. But by using this easy and often-ignored metric as your first-stop in due diligence, you can significantly narrow your investment options, and help guarantee that you’ll be exposed to the greatest wealth-makers of our generation.