Last Updated on: 6th January 2025, 02:21 am
Searching multibagger stock – one that can multiply investment multiple times.This requires thorough research,and to research one must find the stock on which one can research.Even though one knows how to research or study a stock based on its fundamental,one need the name of stock with which one can start .
Studying and doing indepth research on a stock is a time consuming process.So,to hit the nail on the top one needs to filter down or make a list of potential stocks which are worth to be multibagger .
So the very first step in finding a multibagger is to choose a stock .Here is a step by step guide to help investor in their search:
Where To search
- Use Screeners. There are different stock screeners available to start with,such as screener.in,yahoo Finance,to filter companies based on different criterias,like Loss to profit,Highest growth,Quaterly growers,FII Buying.
- Daily Volume shockers- Daily volume shockers can be found in different sites like Chartink,screener.in,See the stock which has high volume and the price has increased.Generally high volume shows high interest in the share ,so one can start studying the stock and check on different parameters.
- Superstar Investor pick: There are many superstar investors whom retailers follow,like Rakesh Jhunjhunwala,Vijay kedia,Ashish Kacholia.One can get clue from their portfolio.Their new investment could be a good bet but they have their own reasons to invest so one should do their own research and if it satify their criteria then only one should invest.
After search, analysis steps
Once the stock name is found,then it has to pass from several screening criteria.If it satisfies all of it,then only it should be finalised for investment.The following could be the key steps for the analysis:
Analysing Financials
1)Cash Flow: This is one of the most important criteria to be seen in a company.If the company is profitable and has healthy cash flow,which is enough to fund its future expansion plans,then it passes this criteria.Healthy cash flow is not only for future expansion it also shows that the product and services in which the company is dealing has demand and the company does not have to make push sales,that is its customers are ready to pay cash for its product or services.
2)Proifitability : One should check for the high and growing profit margins.Growing profit gives PE rerating and stock multiplies with compounding effect,provided the profit is ploughed back into the business.
3)Revenue Growth:Look for companies with consistent revenue growth.Profit margin growth alone could not boost share price,real growth comes if there is a sales growth.So one must choose a company where sales is growing and there is a scope of further growth,otherwise the it would not get high PE.It is the future growth expectation which gives a company high PE.Simply,one is ready to pay higher price for growth expectation only.
Evaluate important Ratios
Profit,Revenue,debt,all these data in isolation does not tell you the complete story.These data could be analysed only if they are compared to their relative factors,we can say Ratios.Some of the ket ratios,without which this research is incomplete are:
1)P/E Ratio(Price to Earning): PE ratio or the Price to earning ratio is calculated by dividing Price of a share by Earning per share.Its simply the price an investor is ready to pay for1 rupee of earning per share.Lets say the PE is 10 that means for Re.1 earning,an investor is paying Rs.10.If you reverse it that is (1÷10)% ,your return on investment is 10%.
2)ROCE: Return on capital employed ratio shows how best the capital employed ( equity + debt)in the business is utilised.A high ROCE business gives better return.
3)PEG ratio: Price to earning to growth ratio shows if the stock is fairly valued in relation to its growth rate.
Management
Quality of management ensures good governance whether a new company or an old one this is one of the most important,just like a salt in the curry,tasteless without it.That is why Warren Buffet said”You cannot make good deal with a bad person”.
So,one must evaluate the managements’ past commitments and how far they have been able to keep it.There are many other ways with which one can judge the management.The anuual report of last 3 to 5 years will tell you the story if studied in depth.We will discuss in detail about this in some other article.
Scope of Market
Assesing the market scope and the potentiality of industry is also important.One must identify the areas and sectors with high growth potential,such as EV,Chip,Green energy,which are in light now a days and companies in this sectors are getting high PE.Companies in high growth sector could be a good bet.
What to consider?
Risk Appetite and goal : First of all one must set and asses risk tolerance limit.High growth sectors comes with equal risk.
Investment Horizon: To get multibagger return a stock needs time to show magic of compounding.So the investment horizon should be long term.
Not all egg in one basket: To avoid big loss one should not put all eggs in one basket,means there should be meaningful diversification.
The Final Formula
The Multibagger Formula Multibagger Return= High Growth(Revenue &profit)+ Healthy cash flow+ Good Management
Happy investing ….
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