How to identify Multibagger Stocks
Multibagger stocks are typically those stocks that have the potential to become market leaders in their business domain in the future but currently are trading at low values.
It is a dream of every stock market investor to identify and invest in these stocks.
Just think about the kind of returns you might have got if you were to invest in stocks such as Infosys, Bharati Telecom, Reliance Industries Ltd etc some 10 or 15 years ago.
Such is the power of identifying and investing in Multibagger stocks. But the big question remains - How are we supposed to identify such future leader aka Multibaggers?
Are there any traits that we have to look for to identify multi-baggers? Well, here are some points that could help you in that direction.
Here are a few easy steps to identify Multibagger stocks.
(i) Look for a company which gives regular dividends.
Paying consistent dividends imply that the management is willing to share the profits with the investors.
Such stocks mostly lie in A group category.
But again, paying too much dividend as a percentage of net profits is also not good.
That means that the management is not finding good opportunities to reinvest the profits for business expansion.
Typically Multibagger stocks will have massive expansion plans most of the times.
(ii) Go for Mid-cap stocks that have the potential to become a large-cap in the near future.
Mid-cap stocks have a greater chance to move upwards quickly.
Preferable a stock whose market cap is less than 1000 Crores.
(iii) Look for a stock that is doing good business in a flourishing niche sector that has huge future potential.
(iv) Carefully check the financial figures of the company.
Multibagger stocks are typically (but not necessarily) growth stocks that show very good year-over-year growth in both Top line and Bottom line.
Also, check out the growth in EPS of the company over the past few years.
(v) Check if the company is operating on a new invention or idea or solving a burning problem of the coming days.
Say for example there is an invention of a new technology which will be in demand in the near future.
An excellent example is an invention of 3G.
Even TATA Nano can be taken into consideration as it is only one of its kind being the cheapest car in the world.
Think of companies that are operating in sectors such as Education, Water Management, Waste Management, Agriculture etc that have huge future potential.
(vi) Check out for companies order value.
There are various companies which have a good amount of orders for the future which are of great importance to a company.
(vii) Check out the expansion plans of the company and the importance of the sector that the company is operating in.
(viii) Last and not least be confident in your stock pick.
For this you have to do very careful research about the business of the company and once you are confident that the stock has the potential to become a future leader, stay invested in the stock for long term.
Few don’t s in selecting a multi-bagger stock.
(i) Don’t select a Penny Stock.
(ii) Don’t lose hope in your company.
(iii) Don’t depend on others, do your own research.
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