What are Multibagger Stocks?
The list of multibagger stocks was first invented by Peter Lynch and was published in his book ‘One Up on Wall Street.’
Multibagger stocks are nothing but equity shares of a company that generate higher returns. Please note that these returns are multiple times higher than the initially associated cost of acquisition.
Multibagger stocks are typically issued by companies with remarkable growth potential, demonstrating sound management and production techniques. Furthermore, it helps exhibit a company's fascinating development and research skills, thereby allowing the product to generate high demand.
But there are certain instances through which multibagger stocks in 2022 are likely to reflect an economic bubble. In fact, this economic bubble might also have extensive long-term repercussions within a country’s financial market.
Examples Of Multibaggers
Uniply Industries can be stated as the most exemplary example of a multibagger share list in India. This company returned more than 1400% in 2015. In a nutshell, the company returned almost fourteen-bagger within a single year.
During the 2020s, Caplin Point Laboratories returned almost 22,300% within a span of ten years. Similarly, La Opala RG rose to 4500% within the last decade. In fact, Garware Technical Fibres have also returned around 2,600% acquired from the past ten years.
When accessing multibagger stocks, investors are not required to be cautious. However, there might be underlying factors solely responsible for paving the way for a stellar performance. These performances typically include the base effect along with remarkably higher growth potential.
However, you should note that the past performance of multi-baggers cannot guarantee a similar performance in the future.
How to identify multibagger stocks?
Here’s how you need to identify multibagger stocks for 2023 in India:
● Look into the Revenue Multiples
The revenue multiples of a company are nothing but the value of its equity relative to the revenues. So, if a company hosts an extremely low revenue multiple, it’s considered a cheap proposition. And if the company has strong potential, it is likely to indicate growth potential.
● Debt on the Books
It is immensely crucial for investors to keep an eye on the debt-to-equity ratio of a company. If one becomes overleveraged, it could possibly become an operational risk for those companies later.
However, the debt-to-equity ratio might also differ between industries. But the experts broadly suggest that this ratio must not exceed more than 0.3. Thus, it's important to look out for companies that consistently generate a return on capital.
And when the growth returns back to capital infusion without any considerable innovation, the company has a potential risk by default.
● Check Those Stocks Which are Undervalued
Please note that the cheap valuation is necessarily a good thing. So, when a stock is overvalued, it’s likely for the investment bubble to burst. Thus, the investors might end up being extremely disappointed with the tremendous drop in the valuation.
But if a company possesses excellent fundamentals but has an undervalued stock, then the valuations might be revised in the future. Furthermore, the investors might end up benefiting from the same.
● Study the PE Ratios Thoroughly
When you study the current PE ratios closely, you can seamlessly identify multibagger stocks for 2025. The PE ratio of a company is the ratio of its share price and earnings per share. And one of the primary indicators of a multi-bagger is when the PE grows faster than the stock price.
● Find a Company That Possess a Strong Competitive Advantage
A company with a strong competitive advantage boosts profitability and growth over its competitors. This might probably become a high market share, low-cost scalability, production, patents and intellectual property, strong brand leadership, etc. In fact, the company will also have zero policy drawbacks and a robust distribution network.
● Pick Out a Strong Industry
From the list of multibagger stocks, you must pick out an industry that is willing to grow substantially in the future. But when the industry shows significant growth or policy hurdles, things might be a little complicated. Thus, you will experience difficulty in picking out a potential multibagger within the industry.
●Management is the Key
It is important for you to find out who is leading the company and is in charge of the management. And when it comes to management, check whether they have shown any expertise in navigating economic downturns.
Also, check whether the company makes frequent changes to their business model. And if they do so, this is likely to be a potential red flag for investors.
● Be Patient
Investors who wish to benefit from the multibagger stocks in their portfolio must exercise patience. A spot trade on multibagger at a reasonable price might benefit you a little.
Even if you cannot obtain higher returns, you can hold your patience a little longer. Who knows, you might probably end up holding on to the winners in the long run.
Which Characteristics Should a Company Possess to Generate Multibagger Shares?
The multibagger stocks for 2023 in India are seamlessly associated with huge returns on investments. These profits can only be realised when companies possess some characteristics and traits, including:
● Potential Growth
Identifying multibagger stocks has now become easier, as the issuing company's performance portrays the same. In fact, those businesses which demonstrate limited debt liability and high-profit generation are the top contenders.
Multibagger stocks have high earnings per share, thereby increasing your dividend income on the investment amount. These companies have an extremely low debt-to-equity ratio, which indicates strong financial management skills.
● Advanced Development and Research Skills
A company's growth is directly associated with the enormous sales volumes of its product within the market. And in order to achieve the same, companies are required to deliver quality products.
Companies can increase their paid-up capital by issuing multibagger stocks to buy today. Besides, companies acting as a duopoly or monopoly can also be classified as an issuer of multibagger shares. In fact, aggressive pricing strategies and entry restrictions allow companies to increase their total revenue generation.
● Remarkable Management Skills
The multibagger stocks for the next ten years are issued by companies that have trained and experienced managers. And with highly effective management, the production chain cannot possibly maintain a proper flow. Besides, there are companies that employ several analysts to identify optimal pricing levels and ensure revenue maximisation.
Why Should You Invest In Multibagger Stocks?
The multibagger stocks for the next ten years can possibly increase your wealth manifold while the returns on these investments are enormous. For instance, you can invest Rs. 100 in these shares and realise profits amounting to Rs. 1,000.
Nevertheless, investment in multibagger stocks must be kept in for a minimum amount of time. This will help in ensuring extensive capital gains through the turnover of funds to the final products sold in the market.
Risk Associated With Multibagger Shares
It’s important to purchase in bulk from the multibagger stocks to buy today. This will necessarily help in creating wealth for an individual. So any loss that an individual has incurred is also considered when they are caught in a market downturn.
Investors who are purchasing from the list of multibagger stocks might possibly get caught up in an economic bubble. And those companies which trade at high prices are likely to reflect the creation of an asset bubble in the country. Meanwhile, the product which is being manufactured is in huge demand because of the market conditions.
Likewise, the value traps are rising enormously, especially in the case of multibagger stocks. And products being manufactured by a company might seem like a profitable investment option in the present. However, it is likely to lead to losses in the long term.
Thus, it’s essential for investors to analyse the financial statements of a company very carefully. Also, you need to go through the prevailing situation within the stock market before checking the multibagger stocks to buy today.
What are Alternative Investment Options Available To An Individual?
Those individuals are willing to risk their luck by participating in stock market investments and have alternative investment options. In a nutshell, they can possibly choose various other tools for their portfolio. Some of them include the following:
● Hybrid Funds
Better known as balanced advantage funds, these instruments basically aim to achieve an optimal balance between risk and return. Please note that both equity and debt securities are present within the portfolio of such funds.
On the other hand, you can earn massive returns through the equity stocks which are present within the corpus. Meanwhile, the volatility of such funds can be technically minimised with debt-oriented securities.
● Debt Funds
The corpus of mutual funds comprises debt securities which the company itself issues. Besides, debt financing poses a typical liability for businesses and is repaid in revenue generation. Thus, it reduces all the associated risks.
Moreover, individuals who possess a significantly low aptitude for risk can consider investing in other mutual funds. But those must have a credible registration with SEBI over the multibagger share list.
The portfolio managers of these funds can also include various government securities along with liquid money market instruments. This helps in ensuring maximum returns at minimum associated risks.
● Large-Cap Funds
You’ll probably know that multibagger stocks are issued by companies just launching in the market. This is exactly what increases the risk level of investment. Meanwhile, large-cap funds can efficiently invest in the equity security of companies that possess a market capitalisation of Rs. 20,000 crores or above.
Most importantly, these companies have proven financial strength along with a renowned reputation. Thus, it deliberately reduces the chances of generating significantly low returns.
Conclusion
There are a few multibagger stocks that are capable of boosting the overall returns of your portfolio. However, the technical trend analysis and research behind picking out the best are immensely crucial.
So, what are you waiting for? Create a trading account on 5Paisa today and start investing in multibagger stocks!
