Sometimes it seems like a fortune that investment in stocks gives you a tremendous return more than your imagination. The sum invested in this kind of stock is quite very low. Apart from this, the investment which we made takes a long-term run to provide these returns.
As it is always considered that investment in equities will provide a return in long term. But there is always a question that arises how we can select is good value investing stock that can give better returns in the long term.
Every investor desires to have a good return from his investments. But for that, they often do a lot of study or research work to get desired results.
It is not that easy to identify multibagger stocks as there are more than 5000+ companies listed on the exchange in the Indian Stock Market, an investor must be selective with the sector of investment alongside all the other factors related to that sector’s growth, future outlook, etc.
A great saying by Mr Warren Buffett
“Our eyes are placed in front because it is more important to look ahead than look back”
This statement means whatever we decide to do today will have an impact in the future, so if we invest Rs 1000 today it may be Rs 100000 Or Rs 1 crore anything can happen.
Method to identify multibagger stocks.
1) Identify Companies Management:
Management plays a vital role in the growth of companies business. As it said no business succeeds without a capable management team. The sustained growth & success of every business is a strong & capable management team.
One can look at other multiple aspects like governance practices, board, diversion of funds, pledging of shares, discipline, and most important financial matters, etc. to determine the strength of the company’s management team.
The best way to identify multi-bagger stocks in India is to understand the ability of companies to be competitive. A company can remain in the competition by offering the best quality services and products as it grows ahead. To understand whether a company has a competitive advantage, just see how innovative they are.
3) Promoters Holding in the Company:
One of the most important factors is to know that the holding of promoters remains the same for a long tenure as they are the ones who started that business and their commitments show how honestly they are focusing on the growth of the company. The longer the promoter is associated with the company the more reliable they are.
4) Earnings Growth:
A shareholder receives when the company makes profits. When you analyze the earnings of a multi-bagger stock, you will find a high growth in the earnings of the company due to its various growth models like revenue growth, profitability, and also its allocation towards the capital.
5) Allocation of Funds:
Companies use their internal funds (Profit after tax) to expand the business or launch some new products for the expansion. This helps companies to have a lower debt against their equity and helps them to generate free cash flow This cash can be used to pay future expansion expenses or dividends.
6) Future Growth:
A company might not be able to make money and survive if it doesn’t have a versatile range of products or services as the markets are very dynamic in nature & the current scenario the world over is looking for change and advancement. The major characteristics of a multi-bagger stock are that the management is very clear about its vision and can take the necessary steps to achieve the same.