In the field of financial success stories, there are few stories that can captivate investors as much as that of the ‘Multi-bagger’. The term refers to stocks that skyrocket in value, reaching at least twice their initial price. Think of PFC, REC (NS:), BSE, CDSL (NS:), etc. – just a few fixtures.
But how common are these astronomical advantages, and more importantly, how can we discover the next stars in the making?
Delving into the universe of multi-baggers reveals a fascinating reality: to uncover a multi-fold gainer in the small and mid-cap sector by the end of 2023, we have to rewind to the Covid era 19 pandemic. What’s really remarkable is that some stocks not only doubled or tripled in value during that time, but increased more than tenfold. It’s a testament to the continued growth potential of the stock market, which is known to deliver annual returns of around 12%.
Every investor dreams of finding that diamond in the rough – a stock bought at a bargain price that later soars to stratospheric heights. But what sets these golden opportunities apart from the rest, and how can investors identify them?
Discovering the next big thing
While there is no magic formula, certain qualities often emerge when researching historic multi-baggers:
1. Consistent Growth: Companies that demonstrate sustained earnings growth, especially in the bottom line, often stand out.
2. Attractive valuations: Look for stocks with attractive metrics, such as a low price-to-earnings (P/E) ratio.
3. Small market cap: Smaller companies, typically with a market cap of less than $500,000, have historically shown greater potential for explosive growth.
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Achieving multiple growth often involves steady earnings growth, attractive valuations and starting from humble beginnings, often as smaller companies.
So how can investors build a watchlist of such potential winners?
Harnessing the power of data
Tools like InvestingPro allow investors to set filters to identify stocks with characteristics similar to historical multi-baggers. By applying filters such as
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compound annual earnings growth of at least 20% over the past five years,
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P/E ratio between 5 and 10
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Market capitalization of less than $500,000 crore
Image source: InvestingPro+
The million-dollar question remains: Will any of these contenders emerge as the next multi-bagger? Only time offers the answer. But among the top three candidates on our watchlist are potential gems waiting to shine.
Discover Milti-bagger stocks and their fair value with InvestingPro+. Register now and receive a temporary discount of more than 69%! Subscribe HERE AND NOW!
X (formerly Twitter) – Ayush Khanna
