How to Identify Multibagger Stocks in India

March 18, 2021 By Futurecaps Advisor 0

what is Multibagger Stocks Market

Stocks that give returns that are several times their costs are called multibaggers. These are essentially stocks that are undervalued and have strong fundamentals, thus presenting themselves as great investment options. Multibagger stock companies are strong on corporate governance and have businesses that are scalable within a short span of time.

How to identify multibagger stocks?

Debt level of the company should be within reasonable limits: There are no defined levels per se for debt, as it will vary from industry to industry. However, as a ballpark measure, debt should not be more than 30 per cent of the equity value.

Check on previous quarter performance: Keep a check on the company’s revenue multiples on a quarter-on-quarter basis. If the multiples are low but the company is performing at the operational level, then that can be a hint that the company has significant upside potential.

Strong And Capable Management

A business cannot succeed without a management team that is capable and strong. Behind the sustained success of every business is strong management. Strength can be a subjective characteristic. You can look at multiple aspects like governance practices, board independence, diversion of funds to other businesses or for personal interest, pledging of shares, discipline with obligations, and financial matters, etc. to determine the strength of the management team.

Competitive Management

This is one of the best ways to identify multibagger stocks in India. A company can stay in the competition by offering better services and products as it grows. For example, Madras Rubber Factory (MRF Ltd as it is now known as) was started by a small town balloon toy manufacturer, and the company has been improvising its products and services as per the demand of the customers. This zeal to keep innovating and tweaking or diversifying their offering as per demand has given them a competitive edge over contemporaries and kept them going strong over the years. To spot whether a company possesses a competitive advantage, see how innovative they have been. You can do so by taking a look at the patents they have, how active their R&D wing is, and how frequently they launch innovative products and services.

Future Growth Potential

A company may not be able to make money if it doesn’t have a comprehensive range of products or services as the markets are very dynamic in the current scenario the world over. One of the characteristics of a multi-bagger stock is that the management is very vocal about its vision and is able to explain the steps being taken to achieve the same.

Conclusion

To sum up, you can easily know how to identify multibagger stocks in India if you spot the underlying characteristics. It is also important to note that these stocks should be invested in with a long term horizon. These businesses have stood the test of time and have taken years to establish themselves as leaders in their respective fields and hence, patience is one of the biggest virtues you need to possess if you want to benefit from a multibagger. As a retail investor, if you are looking for multibagger stocks in 2020 in India, go for a business that has a solid foundation, ethical business practices, sound growth strategy, and exceptional management team. As long as these are in place, you should remain invested for the long haul rather than being perturbed by short term market volatility. Eventually, your steadfastness will be rewarded and you will be able to ride on the success of these multi-baggers.