How To Find Multibagger Stocks in India (7 Examples)
In a TV interview, stock market investor Vijay Kedia revealed that Cera Sanitaryware gave him a return of 16,000 times. This means that only 10 thousand investments would have turned into 16 crore.
Crazy, Isn’t it?
The story is not confined to Cera Sanitaryware only. Many popular stocks, like Titan, Bajaj Finance, Asian Paints, Eicher Motors, Pidilite Industries, MRF Ltd, etc., have turned multibagger.
In this guide, we’ll discuss how to find multi-bagger stocks in India. Ultimately, I’ll share some stock names that could be multi-baggers.
Are you excited? …Continue reading this article.
Understanding the Multibagger Stock
People from non-financial backgrounds often misunderstand the meaning of multi-bagger stock.
They expect 500x returns from every stock in three to five years, but that’s rare.
If a stock price is ₹50 and climbs to ₹500 (10 times the investment) in a very short time, then it can also be called a multibagger stock.
If you ask my definition, I’ll say, “If a stock is giving over 500% return in three to five years, then it would be considered a multi-bagger stock.”
Do you know what’s the average annual return from mutual funds? It generally varies between 15% to 18%.
And what is the annual interest rate for fixed deposits? It’s between 6% to 9%. So, if you’re getting 500% returns from a stock, then, of course, it’s multi-bagger.
I hope you got a better understanding of the term “multi-bagger” in the stock market.
Now, let’s head over to methods to identify a multi-bagger stock…
How To Identify Multibagger Stocks in India
There is no company listed on the stock exchanges with a multi-bagger tag. You must identify them by checking their fundamentals, business model, competitive analysis, etc.
These are seven characteristics of a multi-bagger stock:
1. Strong and Capable Management
If you’re buying shares of a company, which means you’re investing in their business. No business can succeed without a solid and capable management team.
You should analyze multiple aspects like governance practices, board independence, future planning, diversion of funds to other businesses or for personal interest, pledging of shares, and financial matters.
2. Strong Promoter Holdings
The next thing to check is the company’s promoter shareholding. If the management team is confident and capable of scaling their business, their promoters will not easily dilute the equity.
You must also check the history of angel investors of that company because a wise investor will never bet on a weak business model.
3. Competitive Advantage
Before investing in a business, you must investigate the major market competitors of that company.
If there is already some bigger player who has captured the market share, then it will be difficult for a smaller company to compete with limited resources.
So, competitor analysis is another factor to consider when picking a multi-bagger stock in India.
4. Innovative Business
Innovative businesses always succeed in the long term. In early 2010, Nokia was the global market leader in the mobile phone industry, but where do they stand now?
It happened because they didn’t meet customers’ technological needs and stuck to outdated stuff.
So, before investing in a company share, you should check its innovative aspects and how it adopts fast-changing technology.
5. Strong Balance Sheet
A shareholder earns when the company makes profits. If you analyze the balance sheet of past multi-bagger stocks, you’ll notice that they have shown high year-on-year growth.
So, you must analyze a company’s balance sheet and check its revenue and profit margin data.
6. High PE Ratio
A muli-bagger stock has a faster-growing price-to-earnings (PE) ratio than the stock price.
The PE ratio could be complex if you’re from a non-financial background. But I’ll explain it in simple language.
- PE Ratio = (Current Price of a share)/(Earning per share)
PE ratio indicates how much an investor is willing to pay for a single share of a company to ₹1 of its earnings.
Generally, the average PE ratio of the company is 20 to 25. Anything below is considered a reasonable PE ratio, and a higher one indicates an overvalued company.
7. High Gross Profit Margin
If you’re buying shares of a company, which means you’re investing in their business. It will remain profitable if that business has a high gross profit margin due to low competition or higher brand value.
A multi-bagger stock should have a high gross profit margin, and it should remain sustained every quarter or year.
High fluctuations in profit margin indicate seasonal business, and that couldn’t be a multi-bagger.
Conclusion
These are some characteristics of a multi-bagger stock. There are some popular websites like TickerTape and Screener where you can check a company’s fundamentals. You should analyze a company’s fundamental aspects and growth potential and remain invested for the long term.
I hope you find this guide helpful. Keep visiting the Bullish Zone homepage for the latest guides related to the stock market.
