Multibagger Checklist for Value Investing

GROWTH CHECK

Growth Check ensures the company & underlying sector is positioned for growth in the next 5 years to 20 years period of time.

As said before, Information Technology during 2000 was a Growth area. It created 1000 & 10000 X multibaggers during the last 20 years. We need to find out such growth sectors.

As part of the Growth aspects in Multibagger Checklist we use the following Ratios:

Sales Growth

Check the company is having 15% Sales growth for the past 3 years & more.

Consistent Sales Growth ensures that the Company is good in their business, there is a growing customer base & probably returning customers also.

Note: Returning Customers is one of the Key aspect of all Growth business.

Example: Infosys had returning customers through Long-term Account contracts.

Page Industries had returning customers through Brand addicted customers.

EPS Growth

Once the Sales Growth is ensured, we need to check the EPS Growth too.

EPS says the Earnings per Share – that is how the Company is converting the Sales to Profits & Allocating to Per Share.

EPS Growth of 15% above is Good.

Note: You can use Screener Tool for viewing the Company Ratios. Example Screener

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VALUE CHECK

Growth Factor alone cannot yield you to Success. You need to check the Price also. Here comes the Value Check!

Value Check ensures you are NOT buying a Maruti at the cost of a BMW!

Here you calculate the Intrinsic Value of the company using Growth parameters. Then you put a Discount of 30% on the Intrinsic Value to determine the Fair Value.

If the Fair Value is Greater than Market Price of the company, it is a Good to Buy stock!

DEBT CHECK

Debt can give you good leverage. But it can kill you too during tough times. This is the reason Successful Investors like Warren Buffett stay away from High Debt companies.

Companies with High Debt will face difficulty during Economic downturns to pay back the Interest & thus leads to defaults.

You actually need to hold the Multibagger for 5 or 10 or 20 or More years!

As you know in Stock Market, a growth company will get 10X valuations & a defaulting company can be thrown to ashes in no-times. So it is Important for a Multibagger Investor to ensure the Debt is low or zero.

The Ratios to look over here are:

Debt Equity Ratio

Shows how much Debt is allocated on Shareholder’s equity. Lower the better. Maximum 0.4 is advised.

Example: A debt of 1 means there is 100% Debt = Rs. 1 Debt on every Rs. 1 share.

Note: Banking & Finance companies have Higher Debts as their core business is of borrowing money at low interest & selling out for more interest.

Interest Coverage Ratio

Shows how many times the Company can pay the Interest on Debt based on it’s debt.

Higher the better!

Example: If the debt is 100 Crore and the Profit is 200 Crore, the Interest Coverage Ratio will be 2!

Note: Wonderla Holidays is a Zero debt company. After the Corona troubles if you can enter the company at a lower price, It could be a Multibagger!

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INTEGRITY CHECK

Integrity of the Management is important to really give you a Multibagger returns.

Often times, the Management will be Crooked enough to Think Selfishly & Fraud on Accounts to Channel Profits to the Promoter accounts thus cheating Shareholders.

If you enter such a company, your chances are less to get successful as an Investor.

You can do a Fraud Check on Google on the Promoter, Past News, Glassdoor on how they Treat their employees, P&L on proof of dividends & taxes etc.

As an example, we can see Narayana Murthy is a Top Admired CEO of all times – he was careful enough to reduce the costs, optimize profits & give back Superbagger returns to the stock investors.

We need such kind of Promoters!

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