{"id":151,"date":"2020-01-10T16:42:00","date_gmt":"2020-01-10T16:42:00","guid":{"rendered":"https:\/\/www.invest19.com\/blog\/?p=151"},"modified":"2020-03-02T09:54:13","modified_gmt":"2020-03-02T09:54:13","slug":"how-to-identify-multibagger-stocks-in-the-stock-market","status":"publish","type":"post","link":"https:\/\/www.invest19.com\/blog\/how-to-identify-multibagger-stocks-in-the-stock-market\/","title":{"rendered":"How to Identify Multibagger Stocks in the Stock Market?"},"content":{"rendered":"
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Stock\ninvestment has always been recognized as an investment vehicle for wealth\ncreation. However, investing in stocks has a different connotation to investors\nbased on their investing style and understanding level of stock investing. Different\ntypes of investors participate in the stock market every day. Some of them are\ntraders who enter with the goal to capitalize on the short-term price\nfluctuations and make quick profits from frequent buying and selling while some\nof them are long-term investors who understand businesses and companies\u2019\nbusiness models; make long-term investments and wait patiently for the share\nprices to grow simultaneously with the companies\u2019 earnings. <\/p>\n\n\n\n

The\ninvestors are always on the lookout for stocks that might not be known for\ngiving quick explosive returns but act as a big mover hold the potential to\nreward in capital appreciation over an extended period of time. <\/p>\n\n\n\n

Multibagger\nstocks as the name suggests, are the stocks that have high growth potential and\ncan generate multi-fold returns or more in a short period of time. These are\nthe kind of stocks that you can always count on in giving phenomenal returns. It\u2019s\nobvious for an investor to gets attracted towards the Multibagger stocks\nhowever it is not that simple to spot them. <\/p>\n\n\n\n

In\nfact, it is the burning question in the mind of every investor: how to spot the Multibagger stock in the\nstock market? \u2013 <\/em>It is often because the investors use the rear-view mirror\napproach to evaluate Multibagger stock instead of trying to understand how some\nstock become Multibagger and multiply in value. <\/p>\n\n\n\n

5 Cues that can help you in Spot\nMultibagger Stock in the Stock Market<\/h2>\n\n\n\n

Here,\nwe\u2019re going to discuss some cues that can help you in spot Multibagger stock in\nthe stock market<\/p>\n\n\n\n

Company\u2019s Management &\nPromoter Pledging<\/h3>\n\n\n\n

If you\nare to identify Multibagger stocks then you need to seek out companies which\nhave huge growth potential to operate in its industry. In doing so, do not much\nrely on the market capitalization as any company with huge potential whether be\nit largecap, midcap, or smallcap can become a Multibagger and offer explosive\nreturns instead lookout for its management. <\/p>\n\n\n\n

As you\ninvest in the stock of a company, you become a partial owner of the company as\nper owned quantity. Thus, it is important to ensure that the company has strong\nmanagement with an ethical view and visions that benefit the company\u2019s future\ngrowth. You should also give utmost importance to corporate governance as a\nbusiness cannot grow without proper management. <\/p>\n\n\n\n

Apart\nfrom this, look out for strong promoter pledging as promoters are responsible\nfor the day-to-day management of the company. <\/p>\n\n\n\n

Economic Moat<\/h3>\n\n\n\n

Warren\nBuffett often used the term \u2018Economic Moat\u2019 refers to a company or business\u2019\nability to keep the competitive advantage over its competitors in the market in\norder to protect its products\u2019 value and market share from its competitor\nbusinesses. It is one of the major cues to spot a Multibagger stock where the\ncompany prevents itself from its competitors from encroaching the market. This\ngives the company an edge in pricing power over its competitors in the market\nto protect its margin in adverse conditions. <\/p>\n\n\n\n

This\ncompetitive advantage stronghold the position of the company in the market\nallowing keep innovating and diversifying its services as per demand and let it\ngo strong over the years. <\/p>\n\n\n\n

Therefore,\nit is important to ensure that the company has a strong economic moat and\nunique business model to capture the market then there is a higher chance that\nthe company\u2019s stock is to become Multibagger. <\/p>\n\n\n\n

Return Ratios<\/h3>\n\n\n\n

A\ncompany with high return ratios indicates that the company is using capital in\nallocation efficiently. It is also a pointer that the company is generating\ngoods returns on the capital employed. The revenue growth and capital\nallocation models play a vital part in return ratios of a company. Make sure\nthe return ratios are in rising trend \u2013 not\nflat not falling! <\/em><\/p>\n\n\n\n

Simply,\nwe can say those return ratios are a good cue of identifying a Multibagger\nstock. <\/p>\n\n\n\n

Equity & Debt Levels<\/h3>\n\n\n\n

The\nhigh EPS (Earning per Share) is a sign of how much a company is earning against\neach share. A company can high EPS if it has low equity base coupled with high\nreturn ratios. Lower equity levels increase the chances of a company in becoming\nMultibagger. <\/p>\n\n\n\n

A\ncompany can efficiently allocate its capital in operations and business models\nwhen it has low debt levels. Companies with negligible or low debt levels have\nhigher chances of becoming Multibagger. Lower debt levels enable a company to\nuse its earnings for growth and fund future expansions instead of paying the\ndebt leading to increase in in revenue growth rate. <\/p>\n\n\n\n

So, it\nis important to analyze a company on the basis of its equity and debt levels to\nensure if the company can turn into Multibagger or not. <\/p>\n\n\n\n

Future Plans<\/h3>\n\n\n\n

The\nshare price of a company has a direct correlation to the company\u2019s earnings. If\nthe company has a strong business model and futuristic plans of expansion in\nalong with its offerings then the development can have a material impact on the\nvalue of share price in the market. <\/p>\n\n\n\n

It is\nin fact a prime requirement of a company to be Multibagger. <\/p>\n\n\n\n

Final Thoughts:<\/h3>\n\n\n\n

Above are the listed cues of spotting Multibagger stocks in the stock market. If you can spot these underlying characteristics in a company then congratulations!<\/em> You got yourself a Multibagger stock. To sum up all, we can say that the right way to identify a Multibagger stock in the stock market is to select the companies with small market capitalizations with low institutional holdings and high return ratios. So, leave the rear-view mirror approach and identify the stocks before it starts reaping. <\/p>\n

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