If you are investing in stock market, you must have heard the term multibagger stocks. These are the stocks which can give you many fold returns. Stocks that multiply your wealth and give multifold return is known as multibagger stocks. Investors are always looking for such stocks, and why not who doesn’t want to be rich? Right?
We all want to invest in multibagger stocks and there is nothing wrong with it but having a very high expectation can prove to be wrong.
Do you really need multibagger stocks?
Let’s understand what will you do if at all you have successfully identified multibagger stocks? At most you would add it to your portfolio, right? But it’s not that easy to identify these stocks. And there is a high risk involved in buying These stocks. If you are ready for it, go on! But let me tell you, to be honest, you don’t even need multibagger stocks.
If you invest 50000 per month for long period say 20 years and managed to get 18% to 20% average returns, you will get around 12 crores. Further, if you continue for 30 years, the amount will be 75 crores.
These handsome returns are not enough? Do you still need multibagger stocks?
Ok, you are reading this means you still want multibagger stocks. Fine choice is yours, money is yours.
How to pick multibagger stocks?
Keep one thing in mind that multibagger stock is no quick gameplay. I would define multibagger stocks as the one who will become 10X in next say 10 to 15 years.
So here are the few things you should check while defining multibagger stocks.
1. Debt free
The company should be debt free. However, you can also pick a company with low-level debt. If a company has higher debt then all its profit will go into repayment of debt, resulting in lesser or negative net returns. You should look at the debt-equity ratio of the company which tells you how strong is the company in terms of debt repayment.
2. Good performance history
The company should be consistent in its performance on net profit and revenue. You can make it out from the quarterly and yearly results. Past performance will give you some confidence that company’s fundamentals are strong enough to continue generating profit in coming years.
3. Future growth
You should check the future business potential of the company. Which industry company is operating and what is the future of that industry. Check product and service offered by the company and check its current demand as well as future needs. This will tell you how a company will perform in future.
You can also check if there is any new product or expansion plan for the company. This will tell you company ‘s financial strength and future prospects. The good example of this is Reliance industry has launched Jio which has changed the market dynamics of Indian telecom. It has captured big market share in its first 6 months offer. The share price of Reliance Industry has gone highest in last 9 years.
4. PE Ratio
The current valuation of stock should not be very high. If the stock has already given high returns and valuation is high I would not consider it as multibagger. EPS (earning per share) of the stock is at the reasonable level.
5. Market leader
The company should be a market leader in whatever field it operates. It should be able to scale itself to large scale. If you check multibagger stocks are from the small-cap segment.
Conclusion
Apply above points while picking up multibagger stocks. Invest in the stocks which are market leader and generates value to investors.