Futurecaps is a SEBI Registered Research Analyst passionate about Identifying Multibaggers in Indian Stock Market.
Guru says: If you can Identify a Multibagger you have Learned the Game of Moat!
How to Identify a Multibagger?
In this article you will Learn how to Identify a Multibagger using Top-Down Or Bottom-Up approaches
In this approach we Identify a Growth Sector first & then drill down to Stocks filtering.
In this approach we Identify an Undervalud Stock & then ensure the Sector is in Growth area.
Here the first step is to Identify a Growth sector. This can be done through Listing down Few sectors, Researching on their past year growth & Calculated the projected growth ahead.
Example: Information Technology was a Growth Sector during 2000 creating Multibaggers.
You can also use Catalyst factors like New Technology Innovations, Demographics change to find the Growth Sector too.
Example: The Introduction of JIO helped to Unlock the Value in Online Businesses – Entertainment, Apps – Uber, Swiggy, Gaming, Logistics etc.
Following are few Sectors which Futurecaps Research identified as Growth arena.
- eCommerce & Logistics
- Autonomous Vehicles
- 5G Internet
- 3D Printing
- Cloud Computing
- Machine Learning
- Specialty Chemicals
Here we short-list few stocks in the sector based on Value & Growth parameters.
EPS Growth is one commonly used measure where the EPS of past 3 years is used to calculate the Average EPS Growth Rate. Higher the better!
The recommended Growth Rate for a Multibagger is Above 15%
Example: Infosys was having 20% EPS Growth Rate making it a Multibagger.
PE Ratio is another commonly used Ratio where the Current Price is applied against EPS Ratio to find whether the Stock is over-valued or under-valued. Lower the better!
The recommended range for a Multibagger is Below 12
Example: Page Industries was having PE 60 during the market bull times without yielding as a Multibagger from that price.
PEG Ratio is an advanced Ratio used along with PE Ratio. High PE Ratio does not always convey the stock is over-valued.
If the EPS Growth Rate is very good like 30% or 50%, obviously the stock will quote higher PE Ratio but the PEG Ratio will be in Reasonable range.
As a result, the recommended range for a Multibagger is Below 1 Learn More
Here we analyze on the Management & Promoters of the company. All the Multibaggers had a common quality with them – A CEO with Integrity!
If you take Infosys or Cera or Page Industries or V-Guard, you can see that due to Management Quality the company gained a Multibagger status.
Good Management ensures that they have Passion for Growth, Integrity on Accounts, Responsibility to Share holders.
As you can see from the past, If a management is faulty the stock price will be thrown to garbage. So it is important to ensure the Management as you are going to Hold the Multibagger for multiple years Or decades.
This article would be Incomplete without mentioning of Moat! Economic Moat is a Favorite of Warren Buffett. He thinks a Strong Moat is required to protect the Long term growth of a Multibagger from Competitors.
Moat in simple terms is a Competitive Advantage over its Competitors. For example, It can be a Low-cost differentiation. Example: TCS in IT sector provides 30% Low-cost compared to its Peers & thus winning projects over & over for years becoming a Multibagger.
Brand can be a Moat too. Example: Apple enjoys huge Brand Addict Customers who purchase its products again & again. Due to the brand base the company is able to command high prices from its customers.
Switching Cost can be a Moat too. Example: Linux OS cannot replace Microsoft Windows due to the Switching Cost of Windows. The users of Windows OS were so deeply connected with Windows platform, Style of Use, Commands, Office applications etc. As a result they found it difficulty migrating to Linux even though the latter was free.
As you can see Secret Formula can be a Moat too. Example: Coca-Cola enjoyed 30+ years of Business Domination because of the Secret Formula of Coca-Cola.
Futurecaps have Moat too – will tell later. 🙂
You can apply Moat in your Job too – Are you having Economic Moat of Low-Cost, Secret-Knowledge etc. at your Job? If so you can command high salary too.
TRAITS OF INVESTOR
Traits of Investor are additional qualities to ensure you have the Logical, Emotional & Behavioral aspects to Gain the Multibagger returns.
- Long Term Mentality No Multibaggers were created in 1 or 2 years. It would take immense patience to hold the multibagger stock for 5, 10, 20 or more years.
- Passion for Reading No shortcuts here. You need to be voracious reader – reading books, future outlook magazines, annual reports etc. adds to your accolade.
- Master of Calculations You should be a Master Business Mind like Warren Buffet so you will manage Money well. If you are not, don’t worry – You can build up that skills through Futurecaps learnings.
- Collaboration Group Even with the best multibagger research you may not succeed. You should have Master Mind groups to be updated on news & events regarding your existing multibaggers & future multibaggers. Futurecaps runs a Facebook Group – You are Welcome to Join!
- Positive Attitude This is another under-estimated skill. During the bear run times, you will be bombarded with amateur investors that the stock market will never come back. Here, you should be positive enough to ensure the the multibagger fundamentals are intact & take actions to increase your multibagger holdings.
- Money Management you should be developing Accounting, Budgeting & Evaluation skills to Put your Money best at Work! Example: Rent vs Buy Calculator
MORE ON IDENTIFY A MULTIBAGGER
Don’t Worry! You will learn these skills one-at-a-time through our FREE Educational series & PAID multibagger services.