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Posts tagged ‘how multibagger created’


How Multibaggers are Created?

If you are a new investor, we recommend you go through this table below.  This will help you understand the Multibagger Creation Journey.

Year Description Returns

Starting Year

Here you Identified a Multibagger based on Past Performance & Growth aspects.

For example, The capitalization is 300 Crore & PE is just 5.

Imagine you Invested 1 Lakh Rupees on it.

0% on 1 Lakh
After Year 1 The company performed well as expected and displayed 20% EPS Growth.

Now PE is 4.

But all EPS growth will not be reflected in Price, especially in the beginning years.  Hence you will get +/- 20% returns.

+/- 20%
After Year 2 Now the company performed well again with another 20% EPS Growth.

This time the price will have to start reflecting as more & more analysts, people, funds will be looking into the stock.

Let us say the price gained 50%.

The PE is 5 again.

+ 20% | 1.5 Lakh
After Year 3 Your company is performing well with another 20% EPS growth.

This time the market visibility is high & hence the price jumped another 100%

Now the PE is around 8 with Capitalization 600 Crore.

+ 100% | 3 Lakh
After Year 5 Now you are on Year 5.  The compounded EPS growth of 20% lead to 100% EPS growth in 5 years.

Since the Capitalization is above 1000 Crore, Mutual Funds will start Investing. Big Money & Increased Visibility leading to Higher PE.

Now the PE is 20 with Capitalization 1200 Crore.

+100% | 5 Lakh

5X Gain in 5 Years

Now onward 20% EPS growth leads to 30% price growth.

Also, you will earn 100% return on original capital.  i.e 1 Lakh gain every year.

After Year 10 Now the company is growing again at 20% CAGR.

Now the PE is 30.

+500% | 30 Lakh

At this point you will start getting Dividend Yield 1% as 30 Thousand rs. per year.

30X Gain in 10 Years

Wealth Creation!

After Year 20 If you are lucky to have a Superbagger with 20% CAGR. Eg: Infosys, Wipro, Page Industries etc.

Now the PE is 40 and you have a 100X returns on original capital.

All these are possible as, Infosys gave 300X returns in 20 years!

+3000% | 10 Crores

Now the Dividend Yield will be 1 Lakh rs. per month equal to your Original Capital investment.

100X Gain in 5 Years

Cash Flow Generation!

This is how Stock Market creates wealth & cash flow.  It takes really long time for the compounding to work.  No shortcuts!

So here are the problems of amateur investors:

  • They add more stocks than above learning & tracking capacity
  • They exit stocks every other year breaking the power of compounding positioning

SO I recommend each & every investor to understand this process & continue holding stocks long term discarding noises, as long as their fundamentals & growth factors are intact. Be like Pro!