UFP Technologies (UFPT -0.47%) has seen its share price grow by 12,040% over the last 25 years, making it a 121-bagger. Had investors held their shares throughout that time, they would have turned a $10,000 investment into more than $1.2 million.

Despite this incredible run, UFP's multibagger story could still be in its early chapters -- and the company is now available to investors at a discount following a recent 27% dip in share price.

Here's what this promising small-cap business does, along with the four main reasons I'm buying shares of the stock hand over fist in 2025.

1. UFP's widening moat

UFP Technologies counts 26 of the 30 largest medical device makers as customers. It designs and manufactures a wide assortment of single-use components and solutions for the medical technology (medtech) industry. Collaborating with its customers, UFP creates products like surgical drapes used in robotic surgery, medical beds, sterile packaging, numerous surgical components and sub-assemblies, and surgery ports and port cleaners.

While the company isn't home to a single, specific moat that gives it an advantage over its peers, it has numerous differentiators giving it a leg up on the competition, including:

• Exclusive access to certain medical-grade materials thanks to multiple manufacturing certifications
• Numerous patents tied to its products
• High switching costs for customers due to its collaborative process and long-standing relationships
• A focus on boring but hard-to-disrupt and essential product niches that don't attract intense competition
• An average tenure of over 30 years for its CEO, CFO, and president

Aided by these advantages, UFP Technologies has not only delivered strong price appreciation, but is also well-positioned to continue succeeding in the future. Best yet for investors, the company's largest product line -- surgical drapes -- is poised to continue growing rapidly thanks to a manufacturing supply agreement with Intuitive Surgical.

2. Ties to Intuitive Surgical

In 2024, UFP signed a new four-year, $500 million agreement with Intuitive Surgical to supply the leader in robotic-assisted surgeries with single-use, sterile drapes that protect the robots during operations. This agreement ties the company to an industry that analysts believe will grow by at least double-digits for years to come.

This surgical drapes product line currently accounts for roughly 27% of the company's total revenue and fits in perfectly with UFP's focus on recurring, single-use, single-patient product sales.

With Intuitive Surgical recently reporting earnings that saw overall sales from robot installations grow by 25% in the fourth quarter, UFP's most significant product line should benefit and keep pushing the stock's top line higher.

3. Rising margins create a flywheel effect

While UFP's 13% annualized sales growth rate over the last decade is impressive enough, the company has grown its net income by 26% each year over the same time frame. Much of the reason for this success has been UFP's focus on selecting higher-margin products to manufacture with its customers.

Since its customers typically generate product ideas and bring them to the company for a production feasibility check, UFP ultimately decides whether to proceed with manufacturing. This business model essentially means that the company gets to hand-select which ideas to pursue -- typically higher-margin areas. This has led to the company's vastly improved profitability.

UFPT Operating Margin and Profit Margin (TTM) data by YCharts

Powered by this ballooning profitability, UFP has begun to explore the mergers and acquisitions (M&A) market voraciously, adding four companies in the summer of 2024 alone. Targeting businesses that will be accretive to its bottom line within the first year of their purchase (and complement or enhance its existing product lines), UFP has created a bit of a flywheel effect over recent years.

Higher margins have enabled further M&A over the last five years, and these acquisitions have generated higher profits over the previous two years, creating a flywheel effect that could continue for many years to come. While the company's 2024 acquisitions have a lot of potential, investors will want to watch UFP's earnings reports closely this year to make sure the newly integrated business lines live up to management's M&A goals.

4. Premium growth, now at a better value

Following the company's 27% drop over the last few months, UFP now trades at 29 times forward earnings. This valuation compares favorably to the S&P 500's average forward price-to-earnings ratio of 24.

This comparison holds especially true when you consider that UFP has grown its net income by 24% annually over the last decade compared to the S&P 500's average of 7%.

With tailwinds from the robotic-assisted surgery industry, a widening moat, and the potential for developing an M&A flywheel, UFP Technologies will be a stock I add to on the dip, even though its price has already doubled since I first purchased it.