multi-bagger stocks

How to identify Multi-Bagger stocks? Grow Wealth from Stocks

We hear about people who invested some thousand bucks in some stock 15-20 years ago, and now they are worth millions. These types of stories are the most popular and fretted over in the topic of the stock market. I know that we all want to bag such stocks, but we are afraid to do so. Because the truth is, it’s not certain, and we are not experts! Picking such multi-bagger stocks is knowledge, timing, and luck combined.

In this article, I’ll share my part of knowledge on how to get your name is such stories. I mean, how to find such multi-bagger stocks? Time is such that more & more people are now investing in the stock market.

The concept of Financial Independence Retire Early (FIRE) and Retiring Wealthy is more popular than ever. In such scenarios, if you were to identify and invest in one or more multi-bagger stocks, your goal may be achieved early and more than you desired. It’s a complete win! Keep on reading, and I’ll try my best to make it happen for you. But first –

What is a multi-bagger stock?

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If we cut to chase for basic classification of stocks, we get that there are two. One are those which generate profit, and the others result negative. So, in the classification of profit-generating stocks, the ones which generate far more profit than the price paid are called multi-bagger stocks.

Multi-bagger stocks give out profit manifolds of the bought price. For example – One share of MRF was at 320 rupees back in 1990. Today, after 20 years, one share of MRF costs around 85000! Its lifetime high was about 985000! Can you believe it? If you had bought MRF share 20 years ago and were to sell it today – your profit would’ve been 265 times!

An investment of thousand bucks, and twenty years later, you’re a millionaire. That too, without doing anything. This is the power of just one multi-bagger stock. Imagine identifying a few of them. You could earn a fortune in ten years or so.

Now that you have an idea of what a multi-bagger is, we are heading towards the main part of this article. In this article, I’ll talk about –

  1. How to identify multi-bagger stocks?
  2. What are the risks involved?
  3. A tool to ease your work!

Method to find the multi-bagger stocks

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If only we could predict the future, you wouldn’t be reading this article here. But we can’t, and you need to read this! See, finding a multi-bagger stock involves many factors. From the industry of the stock to past performance & future actions, it involves everything. ‘Finding’ one might not be the best word to go with. So let us go on with identifying the multi-baggers.

But I’ll make it easier for you. In this article, I’ll talk about five factors that’ll help you narrow down the choices. From Industry to product portfolio & from debt/profit levels to company metrics, I’ll explain each one by one.

Study the Company Sector 

A stock market comprises of companies and listings from each and every sector. The performance of all these sectors combined results in the performance of the stock market. But it’s not mandatory that if the market goes up, all should go up. At the same time, some sectors perform well, and some perform poorly.

Hence, it’s important to figure out the perfect sector for you! Either pick a sector and then list down companies or pick a company of choice and then study the sector. No matter which way you go, you’ll have to consider the sector.

An example: Two or three decades ago, the gas & oil sector was considered a multi-bagger because industries used oil and gas for various purposes. It had demanded, and it grew manifold over the year.

Similarly, today the technology sector is at boom. Since the COVID-19 outbreak, everything went online, and it’s all tech! Technological stocks and funds have given 100-200% returns in just one year. It is also kind of certain that a good tech stock can prove to be a multi-bagger stock.

Saw the examples? That is why it is very important to pick and study the sector. Today, the technology and pharma sectors are doing better than any. Its not financial advice, though.

Company Portfolio

Now that you have ensured that the selected sector is performing well, you need to examine the company. Say you are studying company ‘X.’ You need to study all the core competencies of this stock. Next, look for the company’s growth over the years, returns generated, it’s future plans following the sector’s future advancements. Unless a company advances with time and scales, it won’t make a profit.

It would be best if you also studied its competitors. You need to make sure that it is one of the best-performing stocks in the sector. And make sure of why you should pick this over others. Pick the one with the highest chance of growth and expansion. Only the best can give you the best returns, right?

Study Debts of the company

You might wonder why? A company performing best in the sector and having the highest growth possibility can’t be in Debt. But no, every company has a debt ratio. It’s different if the ratio is negligible or zero. But what if the company you chose is deep into debt? Will you consider it a multi-bagger stock, or will you not? Ideally, you shouldn’t consider a company with more than a 0.5 debt ratio a multi-bagger stock. You surely can buy it if you want, but it won’t act as a multi-bagger for you.

Hence, its important for you to consider the debt levels of a company too. Because if a company is deep into debts and can’t get out of it, how do you think it will make you profit? That too as a multi-bagger stock?

What more should you consider for a multi-bagger stock?

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Say you chose a company stock based on the above three points. This stock may likely earn you good profit. But to be surer, you can consider a few more points to look into. Allow me to mention a few of them –

Great & Forward management 

It is very important for a company to have a good & strong management team. Otherwise, imagine what kind of returns you’d get out of a company with poor management. Better the management, better performance, better returns.

Total valuation & earning

Imagine a company X valuation of multiple billion dollars and earning ratio sky-rocketing. Won’t you immediately conclude that X is doing great? And it probably will continue to do so! Great valuation & greater profits are a big-time yes.

Future Potential

Along all the points mentioned above, include the tag of future potential. If a company has future potential, it becomes almost certain that this company will do big. It is definitely a multi-bagger stock!

Are Risks involved with multi-Bagger stocks?

What is the guarantee that you’ll be alive tomorrow? Don’t get me wrong; I wish you live long enough. But see, even your life is not certain. I mean, it is just a market! Nothing is certain here. A multi-bagger stock ensures profit by its name only, but it is not certain too.

There are also some demerits and risks involved. Let’s have a look at some of them –

  • I don’t know if it can be counted as a demerit, but in order to make a fortune, you need to buy more. Preferably, you’ll need to buy the stocks in bulk. The logic here is, the more you invest, the higher the risk, the better you get returns.
  • You need to be aware of Bull-Bubble. What is a bull bubble? It is a situation where a stock or the whole market rises abruptly. People think its profitable and dump investments. In reality, it might be an artificial bull scenario created by people at the top. The biggest risk is – the bubble can burst anytime, and you may lose all your money. Hence, it’s better to invest in the future rather than current upgoing charts.

Note: Stock market Terminologies

  • Patience! Call it a demerit or anything, but patience is a strong factor. Every story you hear about spending a thousand and getting millions, you’ll find time common. Most of the multi-bagger stocks need a decade or two to show magic and grow manifolds.
  • Initial days might be tough. You may see the prices falling in a month or a few years. You only need to persevere. Hold and be patient. Eventually, that multi-bagger stock is going to rise. Provided you chose it carefully!

One-stop Tool – Tickertape

Now that you are aware of how to choose/identify the multi-bagger stocks and risks involved use Tickertape.

It is a one-stop destination for all of your stock market analysis needs. From charts to sector & company profiles, comparisons, expert advice, you’ll find everything here. So go to tickertape.com and start picking on your multi-bagger stock.

If you face any difficulty using this tool or need some help, never hesitate. Contact me, and I’ll help you out!

You can find me here – @sushrutkm

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