In the realm of financial success stories, few tales captivate investors like that of the “Multi-bagger". The term refers to stocks that skyrocket in value, reaching at least two times their initial price. Think PFC, REC (NS:RECM), BSE, CDSL (NS:CENA), etc – just a few luminaries.
But how common are these astronomical gains, and more importantly, how can we spot the next stars in the making?
Diving into the universe of multi-baggers reveals a fascinating reality: to unearth a multifold gainer in the small and mid-cap space by late 2023, we'd need to rewind to the era of the Covid-19 pandemic. What's truly remarkable is that some stocks during that era didn't just double or triple in value – they soared over tenfold. It's a testament to the enduring growth potential of the stock market, with the Nifty 50 known to deliver around 12% annual return.
Every investor dreams of finding that diamond in the rough – a stock purchased at a bargain price that later ascends to stratospheric heights. But what separates these golden opportunities from the rest, and how can investors identify them?
Spotting the Next Big Thing
While there's no magic formula, certain traits often emerge when examining historical multi-baggers:
1. Consistent Growth: Companies demonstrating sustained earnings growth, particularly on the bottom line, often stand out.
2. Attractive Valuations: Seek stocks with appealing metrics like a low price-to-earnings (P/E) ratio.
3. Small Market Capitalization: Smaller companies, typically with a market capitalization below $500,000, historically exhibit greater potential for explosive growth.,
Achieving a multifold increase frequently involves steady earnings growth, attractive valuations, and starting from humble beginnings, often as smaller companies.
So, how can investors build their watchlist of such potential gainers?
Harnessing the Power of Data
Tools like InvestingPro allow investors to set filters to identify stocks with characteristics akin to historical multi-baggers. By applying filters like
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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 below $500,000 crore
Image Source: InvestingPro+
The million-dollar question remains: Will any of these contenders emerge as the next multi-bagger? Only time holds 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+. Subscribe now and get over 69% off for a limited time! Subscribe HERE AND NOW!
X (formerly, Twitter) - Aayush Khanna