Multibaggers stocks are those stocks that give an investor very high returns. Thus a 10x multibagger is stock that has increased by 10 times. Most successful investors have a number of multibaggers in their portfolio.
Companies with qualified and experienced management produce multibagger stocks. Sticking to a strategy and knowing when to be flexible enough to change it
High Growth in Revenue, Net Profit, and EPS
A company that gives multibagger returns has impeccable financial performance. These include high growth in sales at the same time maintaining or improving their operating margin and steady profit growth.
These firms often have a low debt-to-equity ratio, showing superior financial management abilities.
You can also see a strong future outlook from the future demand for the company’s product and its ability to innovate on the product continuously.
You can research many important KPIs to identify multibagger stocks. We have listed them below for your reference.
KPI | Description |
Debt-free or Low Debt | Keep the company’s debt within appropriate limits: There are no set amounts of debt, since it varies from business to industry. Generally, a debt-free company is a good indicator. |
Revenue Growth | Strong growth in revenue above the industry average is crucial. We research and compare the revenue performance with the industry. |
Net Profit | Net profit can be lower during the investment phase of the company. Therefore, we need forecasts keeping in mind the historical investment the company has made. |
Earnings Per Share | Earnings per share (EPS) are the strongest indicator of a company’s earnings growth. EPS is the portion of a company’s profit allocated to each share. You can determine it by dividing the company’s net profit by the number of shares outstanding. |
A good firm is not always a good stock. For example, Wipro is regarded as one of the greatest firms in the IT industry. But it has only provided a CAGR of 0.4 percent over the previous 20 years.
Inflation reduces the purchasing power of money over time. Investing in general stocks may help you defeat inflation, since they can produce long-term profits. However, investing in multibagger stocks can give 100x more returns than a standard Blue chip stock investment, thus helping wealth creation.
Investing in multibagger shares can significantly increase the value of your money more than a regular equity stock or even mutual funds. Multibagger stocks multiply your capital 50x to 100x in a short period.
When it comes to multibagger stock investments, value traps are becoming common. Products made by a corporation may seem to be a successful investment choice in the short term, but they will result in losses in the long run. Investors anticipate that the values of such shares will skyrocket in the future, which doesn’t happen since the asset has no inherent value.
Before investing in multibagger stocks, investors should thoroughly examine a company’s financial statements as well as the current health of the stock market.
Below are the common risks which an investor needs to avoid:
A lack of knowledge and a fast money mindset may sometimes lead to investors carrying liquidity risks. These prospects are seldom larger inequities whose prices markets have identified.
There is a reduced likelihood of bigger payouts from all probable multibagger equities and a higher possibility of markets failing to find the predicted price of the selected scripts.
There is a common misconception that low-priced/penny stocks may offer significant profits in the future, but high-priced stocks cannot. Several instances can help better describe this myth.
Page Industries grew from Rs. 1000 in 2010 to Rs. 29,500 in 2021, becoming a multibagger (2000 percent return). On the other hand, Suzlon has lost more than 70% of its value in the previous nine years. The stock price has fallen from Rs. 19 in 2011 to Rs. 5.1 in 2021.
Before investing one’s hard-earned money in stocks with high hopes of a multifold increase in share price, one should always become well-versed in the company’s fundamentals. The investor must also have the patience and confidence to hang on to the equities until the market discovers the hidden value.
Finally, diversification is crucial. Putting all of one’s money in a single company projected to generate high returns might lead to unsystematic or unpredictable risk.
The most critical part of investing in a prospective multibagger stock is one’s patience and capacity to retain it through good and bad times since the firm itself takes several years to establish itself as the industry leader. It is often more tricky to hold a prospective multibagger than to recognize it.
Companies with high growth potential that use excellent management and production strategies issue multibagger shares. These stocks generate very high returns, turning lakhs into crores in a short period.
No, multibagger stocks are high-risk investments. They can give high returns and also cause huge losses in your principal amount, which you would not see in deposits or standard large equity stocks. So you need to invest only as per your risk-taking ability.
Many multibagger stocks in the past have yielded more than 20,000% in 10 years. Some examples of good multibagger stocks in the past 5 years are:
a) Dixon Technologies
Dixon Technologies, a market leader in Electronic Manufacturing Services, has grown 5x in the previous three years and generated a 558 percent return.
b) Bajaj Finance
Bajaj Finance Ltd., a diversified NBFC active in consumer, SME (Small and Medium Enterprises), and commercial financing, has increased about 6x in the previous 5 years, yielding a 600% return.
c) Asian Paints Ltd
Asian Paints Ltd., which manufactures, sells, and distributes paints, has increased more than 100 times in the previous 20 years, resulting in a 21000% return.
There are methods and techniques for identifying several stocks that can become multibaggers in India and elsewhere. Because history does not always repeat itself, the company's future must be seen mainly through the lens of its previous development.
In terms of the business and financial features, all Multibagger firms in the past exhibited certain similarities:
It is critical to choose a sector that has potential to expand in the near future. Expansion is key to the growth of a company.
Before investing, you must consider the company's borrowings. The debt to equity ratio, computed by dividing the company's obligations by shareholder equity, best defines financial leverage.
A company's sustainability is just as crucial as achieving above-average earnings. A competitive advantage is a driving force behind long-term high-profit growth.
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