How to find Multibagger Stocks

What are Multibaggers Shares:-

How to find Multibaggers Stocks:-

Why to buy Multibaggers Shares:-

What are Multibaggers Shares:-

Multibaggers stocks are the companies which gives multiple time return on their investment value. For example if you have bought the stock at 100 rupees and the stock price is right now is 1000 rupees then we can say it is ten bagger stock. Investor always try to find out the multibaggers stock time to time so that their money can be multiply with passage of times.

To identify the multibagger stock is very crucial task and its need vast experience to select. ISFM have collected few point which you can see during search the multibagger stocks.

Major Common Factors are:-

1. Market Cap:-

They have a small market cap between 1000 Cr. To 4000 Cr. ( Smaller is  better )

2. Liquidity-

The stock is illiquid. They are not tracked by brokerage houses and there is no/negligible institutional investor present.

3. Management-

They have a first generation management. (Like Sunil Mittal of Bharti, Dhirubhai Ambani of Reliance)

4. Debt to Equity Ratio-

Zero debt or Debt to equity ratio of less than 0.5.

5. ROE-

High ROE (return on equity) and High ROCE (return on capital employed)

6. 6. P/E Ratio-

Low P/E ratio as compare to industry For example if the Industry PE ratio is 40 then stock PE ratio must be less than 40. (It’s not a norm but chances are high since P/E re-rating exponentiates your return. There are many high PE stocks which go further up but that judgement will come from experience and knowledge. It can’t be taught.)

7. Ethical and Efficient Management –

The single most important factor to watch out for while hunting for a multibagger. Since, it’s an intangible factor and can’t be found by equations or an excel sheet. It can only be evaluated by reading annual reports, articles on the management, researching about their past, their views on the business, and if you need a shortcut then look out for the business’ ROE. If it’s high, then most of the time the management will be efficient.

8. Scalable Business Model –

Rakesh Jhunjhunwala gave example of Lupin, how it went up from 1 to 2000. It went up because the business was scalable. The Pharma industry is huge. It can accommodate 10 more Lupins.

9. Sector Leader –

There are high chances of sector leader in a scalable sector to become a multibagger.

10. Future Growth Potential-

In 1995, Hero Honda had a market cap of 200 crores. They sold one bike for ₹20,000. By conservative estimate, even if we assume that 10 million people will buy a bike, the whole 2 wheeler market was pegged at ₹20,000 crores (10m x 20,000). So, the sector leader was quoting at ₹200 crores and the whole sector was ₹20,000 crores. That itself gave Hero Honda 100x potential. Whoever spotted that potential, is happily retired.