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What are Multibagger Stocks

 

What are Multibagger Stocks

A Multibagger Stocks is an equity stock which gives return that are several times to their costs (more than 100%) are called multibagger stocks. The term multibagger was coined by Peter Lynch in his book ‘One Up on Wall Street’, referring to stocks that return many times over the original investment.

How do you Identify Multibagger Stocks?

Multibagger shares can be identified by the following conditions prior to investing in any company.
1. Debt level of the company should be within the reasonable limits. There is no predefined level for debt, as it will vary from industry to industry.

2. Check on previous quarter performance: Keep a track on the company’s revenue multiples on 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 operation level, then it can be a hint that company has significant potential.

3. Sources Of Earning: Along with the revenue earning, check the sources from which the company is making money. Is the primary revenue segment set to grow at the macro level? Are the operations of the company easily scalable? If yes, then the stock of the company may have the potential to became a multibagger.

4. Earning and price multiples: Calculate the trailing 12-month EPS and revenue to arrive at the current PE ratio. If the PE level is growing faster than the stock price, then there is chance of being a multibagger has bright future.

5. Check out the business model structure changes: Be on the lookout for any major changes in the quarterly results reports that have significant impact on the company’s operations.

6. Look at Stocks that are undervalued: Cheap valuation may not necessarily be a bad thing. If a stock is overvalued, the investment bubble may burst, and investors may end up being disappointed with the drop in valuation. But if a stock is undervalued, and the company has good fundamentals, the valuation could be revised in the future, and the investors may take benefits form it.

7. Have patience: For a diversify portfolio investors need to have multibagger stocks in their portfolio. These multibagger stocks will give you a long-term profit if you have patience.

8. Management is Key: Take a look that who is leading the company and their management practices, stability, vision of the company, shareholders and dividend policies. If a company changes its business model too frequently, it may be a red flag for the investors.

If you are looking to invest in multibagger Stocks but do not have any demat account and wish to open one, visit the following links.

To open your account in Zerodha


To open your account in Angel Broking


To open your account in Alice Blue



Also Read: Everything About Penny Stocks in India

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