How To Find Multi-bagger Stocks?

Is there a way to become wealthy?

In order to achieve success, many of you want to know the answer to that question so that you can learn from experienced people and implement the skills they have taught you. By looking up that question, you can find out how people like Warren Buffet became wealthy.

In this article, we will discuss the methods or measures through which you can use to find a multi-bagger stock and invest in it.

We all want multi-baggers. Many of the world's biggest investors have become rich because they have discovered multi-baggers.

What is Multibagger?

Stocks that give returns that are several times their costs are called multi-baggers.Multibaggers are investments that generate a good amount of returns beyond their cost, or you can say that stocks that have given more than 100% return are multi-baggers.

You can read our article "Multibagger stocks for next 10 years".

Let's understand it in simple terms:

A multibagger is a stock that has a high potential for raising funds for the company as well as substantial growth, resulting in a solid return every time.

In other terms, a stock giving multiple-time returns to its shareholders is considered to be multibagger stocks.

The businesses in this category have strong fundamentals and are undervalued.A multibagger's business is usually scalable and has high corporate governance. Since its IPO in 1995, HDFC Bank has completed 26 years as a multi-bagger. If dividends are reinvested, the stock has returned a 30% CAGR, whereas it has returned a 25% CAGR without them.

An investment of 1 lac in that IPO of HDFC Bank is worth Rs 8 crore today, which means that it has given 800 times return to its shareholders.

Now coming to the main question how to find multibagger stock , let’s discuss this.

How to identify Multibagger Stock?

1. Strong industry tailwinds-The first step is to identify an industry that will grow at least four times in the next decade. If the industry itself does not grow then the company will find difficulties to grow.
2. Strong M.O.A.T - The second step is to identify a company with a MOAT or a competitive advantage, such as -

• High market share

• Lowest cost producer/unique resources

• Scale

• A strong brand

• An extensive R&D capability

• Strong technical Tie-ups or intellectual property

• Wide distribution network

• Favorable regulations

Due to these competitive advantages, the company will be able to capitalize on their industry's growth and grow faster than their competitors.

1. Capable Management - Choose a company with fundamentally strong management. The importance of capable management in a company is often underestimated. Invest in a company with stable, high-integrity management that has been able to navigate cyclical and technological changes effectively.
2. Balance Sheet - Focus on a company with a good and clean balance sheet. As a ‘ballpark’ figure. Choose companies whose debt-to-equity ratio is less than 30%. If the company and its management had high debt, they wouldn't be able to innovate or be aggressive. You should also ensure that the company consistently generates cash flows and has a ROC of at least 15%.

In the absence of ROC and cash flows, growth will lead to debt traps.

5. Reasonable Valuations- Stocks of good companies may not necessarily be good stocks of good companies. Even great companies can suffer from valuation compression over time.

Stocks that are appropriately priced leave very little room for error or disappointment.It is important for investors to determine the value of the company first, and then pay a lot less for it. A stock may become a multi-bagger when the price paid is much less, increasing the chances of rerating.

6. Patience - Patience is the key to finding a multi-baggers stock. It is impossible for most investors to resist the temptation to buy and sell constantly. A great investor, however, has succeeded because of inactivity. It may be possible for investors to find the best stock at the best price, but their desire to constantly act could cause them to miss out on multi-baggers.

It is very difficult to find the best stock at the best price if you cannot hold onto your winners over the long term.

My name is Anubhav and i write articles on multiple topics. Thanks for showing support.