What Are The Basic Things You Need To Know About Multibagger Stocks?
3 min read
Multibagger stocks are basically the equity shares of a company that are intended to generate returns multiple times higher than its associated cost of acquisition. First invented by Peter Lynch, these stocks were published in his book ‘One Up on Wall Street’.
Companies encompassing tremendous growth potential and outstanding management techniques usually issue multibagger shares. A company thus allows this to generate a high return in the market, and is found only in high-growth industries as their scope for growth is enormous.
In this article, we’ll share what attributes are associated with a company generating multibagger stocks India and how to identify them. So, stick around till the end.
Identifying multibagger stocks is easy by simply looking at the performance and growth of a company. A business with a high-profit generation is likely to be a top contender when it comes to such stocks. Companies with low debt ratios thus indicate strong financial management skills identifying them as potential multibagger stockholders.
Considerable investment in the research and development of a product is yet another important characteristic of a company to issue multibagger stocks, enlisting its securities in the stock exchange and immense customer satisfaction.
Start-up companies are therefore a great example of this, encompassing high customer usage scope by generating massive demands in the market, leading to an increase in their paid-up capital by issuing multibagger stocks.
How do you identify multibagger stocks?
You can do this by simply looking at the following aspects of the desired company.
P/E ratios
This aspect of a company helps you identify its current price-to-equity ratio, indicating the ratio of a company’s share price and earnings per share. Thus, it’s easy to identify a multibagger if the PE ratio of the company is growing faster than the stock price.
Revenue multiples
Analysing a company’s revenue multiple will give you the value of its equity relative to the revenues. Attribution of a low or strong revenue multiple will indicate a cheap proposition and growth potential respectively.
Debt ratio
It’s necessary to evaluate the debt-to-equity ratio of a company for investing in multibagger stocks. Ignoring this aspect can pose operational risks for the company at a later point in time. It is therefore necessary to look out for companies that intend to generate a consistent return on capital.
What risk can be posed to an investor with multibagger stock investment?
When it comes to the stock market, there’s no sure shot of making a profit in the first go. And especially when it comes to investing in India, multibagger stocks have to be purchased in bulk which might pose the investor to incur a loss if caught in a market downfall.
There are also chances of falling into the value traps where the company might seem profitable, but not benefit you in the long term. Although, there are risks that come with multibagger stocks doesn’t mean they won’t help you in creating valuable profits.
In this article, we covered what are the basic things you need to know about multibagger stock. And how to identify them. Yet another trendy investment choice includes large cap stocks. Large cap stocks are shares from companies with a large market capitalization who are financially stable and reliable enough to handle economic crises better.
About Author
