Back in the 1930s, an enterprising salesman named Hubert Hansen began peddling fresh apple, strawberry, banana, and other fruit juices to film studios and small retailers in southern California. These flavorful drinks caught on quickly. Soon, the Hansen name worked its way from Hawaii to the East Coast.

Under the direction of Hansen’s grandson, the company prospered and annual sales eventually surpassed the $50 million mark. Unfortunately, the business fell on hard times in the late 1980s. Burdened with debt from a new factory, it eventually filed for bankruptcy.

But a small group of investors sensed residual value in the Hansen name. They resurrected the brand, reinvigorated sales, and listed the company on the Nasdaq. By the mid-1990s, it carved out a sizeable niche in the non-carbonated drink segment by developing a variety of popular teas, smoothies, and fruity concoctions.

Still, bumping up against powerful competitors like Snapple made life difficult and kept profits in check. The market saw little promise in Hansen, valuing the company at just pennies per share. But management wasn’t discouraged. They experimented diligently with new ideas and drink formulations, until something amazing happened…

A new beverage that brought miraculous success almost overnight.

In 2002, Hansen introduced a 16-ounce energy booster packed with massive doses of caffeine and sugar. This “Monster” drink quickly swept through college campuses and sporting events around the country. Marketing reps sped up the rollout by handing out free samples at surfing competitions and other teen gatherings.

The results were dramatic. Annual sales doubled from $100 million before the launch to more than $200 million in 2004. But the momentum didn’t end there. Revenue doubled again the following year to $400+ million and then ballooned to nearly $700 million the next. By the end of the decade, this obscure beverage maker was a billion-dollar company.

The surge in revenue paved the way for explosive earnings growth. Annual profit spiked more than 40-fold within the first seven years. Flush with cash, the company was able to expand into unpenetrated foreign markets. It also introduced new flavors such as Java Monster and Blue Agave Full Throttle.

Today, we know this drink maker as Monster Beverage (Nasdaq: MNST). The company sells over two dozen different concoctions in 139 countries worldwide. Shareholders have been amply rewarded. The former penny stock has zoomed 125,000% over the past 25 years and is now valued at $60 billion.

These kinds of runaway success stories don’t happen every day. But they are more common than you might think. Advanced Micro Devices (NYSE: AMD). Caterpillar (NYSE: CAT). Intuitive Surgical (Nasdaq: ISRG). All have delivered massive gains for investors over the past decade.

What do these businesses have in common? Well, not much on the surface, with product lines ranging from semiconductors to heavy construction equipment to delicate surgical instruments. But like Hansen, they all devote many hard hours (and many millions of dollars) to new product development.

And the commercialization of novel ideas can be a powerful growth catalyst.

Take Pfizer (NYSE: PZE). The biopharma giant hauled in $64 billion in revenues last year and management dutifully pumped $11 billion right back into research & development (R&D). That’s almost 20 cents for every dollar of sales.

The results speak for themselves.

Pfizer currently has 115 drug compounds in its deep development pipeline, 37 of which have advanced to Phase 3 clinical trials and are nearing FDA approval.

Investors don’t always appreciate the unsung efforts of professionals toiling away in research labs. But this is the cradle of new ideas… the nursery of breakthrough advancements.

And in time, the fruits of these labors often become clear for everyone to see.

Think of Nintendo, whose revolutionary Switch combined the power of a home video game console with the portability of a handheld system. The company sold two million units within the first month and has shipped more than 150 million to date.

Or Block, which was initially known as Square. Back in 2010, the innovative payment processing company unveiled a simple, yet disruptive card reader that could be attached to mobile phones, allowing almost any small business or street vendor to accept credit/debit cards.

Within two years, more than three million merchants had already installed the low-cost card reader and the payment platform was handling $12 billion in annual transaction volume. By 2018, the company’s revenues had exploded 15-fold, rising from $200 million to $3 billion.

These are hardly isolated examples. Apple’s (Nasdaq: AAPL) smart watch. Amazon’s (Nasdaq: AMZN) Echo. Even Popeye’s craveable chicken sandwich. The list goes on.

The Innovation Richter Scale
R&D is often referred to as the lifeblood of a company. And for good reason. Without enough ideas circulating through the system, even powerful market leaders can wither up and die. By contrast, forward-looking organizations with a culture of innovation typically find ways to elevate their products, engage customers, and generate market-beating returns for shareholders.

I classify R&D breakthroughs by their potential to shake the ground around them.

Incremental Innovation
These are fairly common (though still important) tweaks that enhance existing products. Think of Hershey (NYSE: HSY) sweetening its chocolate Kisses by filling them with cherry or peanut butter – a new twist on an old favorite.

Breakout Innovation
This next level involves bigger enhancements that raise the bar for all other players. Remember the days of bulky televisions made with cathode-ray tubes? Flat-panel displays have made them a relic of the past.

Game-Changing Innovation
These financial earthquakes can be orders of magnitude more powerful than the first two. They not only transform an industry, but create brand new ones from scratch. We are seeing just such a seismic event today, with the booming Artificial Intelligence (AI) field spurring massive growth up and down the chain, from data center owners all the way to consumer-facing products like Google’s Gemini.

Lead, Follow, Or Get Out Of The Way
Those of us old enough to experience firsthand the music of the early 1980s probably recall the transition from vinyl and 8-tracks to cassette tapes. You may even have fond memories of listening to Duran Duran or Van Halen on your first Sony Walkman.

I certainly do.

Then there was the giant leap to CD players, with their space-age look and superior sound quality. But then even CD players fell into obsolescence when a South Korean company introduced the first digital audio MP3 player. Apple was quick to spot the potential in this new technology and immediately laid the groundwork for what would later become the iPod.

Of course, that cash cow has itself been supplanted by streaming technologies, giving rise to the wireless Airpod headphones.

Music is no different than anything else. Take almost any product – from golf clubs to tax filing software – and technology has upgraded it over the years… or replaced it entirely.

This never-ending process of creative destruction can be a double-edged sword for investors, punishing businesses that are behind the curve and slow to adapt, while greatly rewarding those on the cutting edge.

That’s why it pays to keep an eye on R&D expenditures.

To be sure, the explosive breakthroughs I’ve mentioned don’t come along every day. But even smaller innovations can whip up excitement in the market and generate handsome gains for shareholders – long before the products themselves ever hit store shelves.

As consumers, we can see innovation all around us, from stuffed crust pizza to cars that can magically parallel park themselves. But investors must be quicker to the punch and anticipate developments before they occur, not after they become the status quo.

A talented (and well-funded) research bench can not only propel emerging startups, but also keep mature companies a step ahead of the crowd. Of course, not every dollar of spending yields results. Some is poured down the proverbial drain. So look for tangible signs of success… patents, intellectual property rights, and a proven history of bringing viable new products to market.

Legendary hockey player Wayne Gretzky scored a record 894 goals during his remarkable career. When asked his secret, he replied: “skate where the puck is going to be, not where it has been.”

Investors would do well to follow that sage advice.