What is Multibagger Stocks?

Peter Lynch coined the word ‘Multibagger’ in his book ‘One Up On Wallstreet.’ It’s not difficult to understand what is multibagger stocks. Multibagger stocks meaning is simple, and it is the stocks that have provided humongous returns over a long period of time. Say a stock gives 2 times returns, then it’s considered a two-bagger.  A stock providing 3 times would be a three-bagger. A stock giving 10 times the returns is considered a ten-bagger stock.

To be a multibagger, a stock has to provide significant returns over a certain time. The time period doesn’t have to be fixed, but it needs to be significant enough to provide returns. No stock is considered a multibagger stock till it gives returns. It’s close to impossible to predict the exact returns any stock can provide. Just like how a seed needs the correct soil, the right amount of water, and the appropriate amount of sunshine, a stock needs the appropriate circumstance to become a multibagger stock. 

Examples Of Multibaggers

Since the beginning of the stock market, many stocks have been showcased to be multibagger, giving enormous returns to investors.  In 2015 Uniply Industries was considered a multibagger as it provided a return of more than 1400 percent within the span of a year.  Caplin Point Laboratories was a multibagger for providing 22,300 percent returns in 10 years. KIFS Financial Services was the biggest multibagger for 2021, providing a 207 percent return as of Jan 2022. AK Spintex, RTCL Daulat Securities, and Sacheta Metals have all provided more than 150 percent returns in the year 2021.

A couple of more multibagger stocks are who provided 100 percent or more returns within a year after 2021 concluded are Triveni Glass, BCL Enterprises, Orosil Smiths, Kellton Tech, Tranway Technologies, Zodiac Energy, Tinna Rubber and Infra, and Ruttonsha International Rectifier.

For the same time period Bhakti Gems, Banas Finance, Citizen Infoline, Gujarat Credit Corp, Katare Spinning Mills, Swiss Military Consumer Goods, IL&FS Engineering and Construction, Polo Queen Industrial and Tine Agro, etc., provided returns of 100 to 95 percent.

How To Identify Multibagger Stocks?

Multibaggers are gold mines waiting to be discovered. You need to consider various factors before investing in these stocks. There’s no guarantee that a particular stock will be a multibagger. Here are a few factors you should research before you invest in a multibagger stock.

1. Debt

Debt to equity ratio is something all investors should be aware of. Having huge amounts of debt can be harmful in the long run. One should look at the revenue being generated and try to understand how it’s been changing with time. An increase in returns can indicate that the requirement to take upon debt might reduce. IT advised having a debt to equity ratio of 0.3 or lower to avoid being under excess debt

2. Revenue

Looking at revenue is crucial. An exponential growth showcases the probability of more growth in the future. A company whose revenue has been growing shows strong growth potential along with the change of being a multibagger stock

3. PE Ratio

PE Ratio is the ratio of the share price and the earnings per share. Understanding the PE ratio and comparing it to the same sector companies can be quite helpful. Drastic growth in PE ratio compared to the growth in share price is often considered an indicator for a multibagger stock.

4.  Sector

Picking the right sector to find a multibagger stock is important as well. Certain industries benefit during the development cycle of the economy. An example could be the booming of raw material industries like mining and agriculture during the early development stage of a country. Finding the right company can be difficult, though as new policies are implemented, economic turmoil, or natural calamities that can change the course of an industry.

5. Competitive Advantage

The company you believe would be a multibagger must have a competitive advantage compared to its peers. It will end up being a competitive stock if it has something unique associated with it. The uniqueness could be something in its product in terms of quality or an efficient way of manufacturing. It can be anything helping it scale better, have more patents, have better R&D, etc., giving it the competitive edge.

6. Management

The human factor is very unpredictable, which is what this aspect focuses on. The people running the business play an important role in directly deciding if it would be a multibagger stock or not. The performance of the company is completely dependent on the decision taken by the management. The right decision during the time of a crisis can be extremely beneficial. A trustable management board and a good plan is a positive signs for a multibagger stock

7. Valuation

Knowing the valuation of a company is important. If it’s overvalued, there is a chance that it could plummet drastically after the popping of a price bubble. Finding the perfect company, i.e., a company that has good fundamentals, is financially in a good place, and has the right management, can be a multibagger stock. IF you’re lucky to find such a diamond in the coal, you should hold on to it till its value isn’t recognized.

8. Patience

Patience is key. It could take years for the true value of a stock to actually be recognized by investors. There have been stocks that have provided over 1000% returns over the long run. Finding a multibagger stock before it becomes one is only half the work. The actual task is holding on to it no matter what till it turns out to be a multibagger stock.

Conclusion

Finding a multibagger stock can be extremely difficult and can involve huge risks. You’d actually have to invest a huge amount to get sizeable returns. If you made a wrong investment, you must be ready to bear those losses too. Research plays an important part, and luck can make it a multibagger.

Frequently Asked Questions (FAQs)