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Equity shares of the company that give returns that are multiple times higher than its associated cost of acquisition are called Multibagger Stocks.
These stocks are issued by the company having tremendous growth potential, demonstrating strong management and production techniques and tactics.
Multibagger stocks are not a category of stocks but describes the nature of the stocks that have great potential to raise funds for the company and grow exponentially, while providing high returns to its investors.
Multibagger stocks are not created overnight. They have some quantitative and qualitative characteristics.
Qualitative Characteristics of Multibagger Stocks:
This characteristic represents how well the management of the company is running the business. Firstly, the most important characteristics of a multibagger stocks is if the company is ahead of the competition by providing better products or services or by building a brand.
Secondly, the management of the company is the heart of a business. Under qualitative characteristics, for a company it is significant to have an honest management. An honest management discusses its business goals clearly and presents a blueprint on how its going to achieve its goals.
Third, companies with strong Promoter holdings indicate the trust of the founders in the business. Good businesses usually have promoter holding above 50%.
Fourth, before allocating capital to any project it is crucial for the companies to analyze the expected return on investment and risk-reward ratio.
Quantitative Characteristics of Multibagger Stocks:
This characteristic represents the financial status and statements of the companies. First, the most important factor among quantitative characteristics of a multibagger stock is high earnings growth. It is critical to evaluate the financial performance of a company.
Higher the EPS (Earnings Per Share), healthier the company.
Second, multibagger stocks with high profit margins demand having little or no competition or having a strong brand presence which allows companies to charge a premium over the products or services they offer.
Third, a debt free company is the best candidate for multibagger stock. Fourth, a multibagger stock has the potential to generate high free cash flow that can be used for future expansion, payment of debt or distribute dividends.
Why should you invest in Multibagger stocks?
Multibagger stocks are known to increase your wealth manifold, as the returns are tremendous on such investments. Investment in multibagger shares has to be kept in for a minimum amount of time to ensure extensive capital gains.
Investors need to analyze the financial statements of a company carefully and the prevailing situation in stock markets before investing.
Conclusion
The biggest virtue of a multibagger investor is their patience due to the sheer amount of time these stocks take to show the potential value.
They take a long time to show results, but as they start, the stocks become multibagger securities.
Disclaimer : All content provided is for informational purposes only, and shall not be relied upon as financial/investment advice. Neither CapitalVia nor its employees have a holding or any sort of interest in any stock which is recommended. Recommendations shared, if any, are only shared for information purposes. Although the best efforts have been made to ensure all information is accurate and up to date, occasionally unintended errors or misprints may occur.
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