A multibagger stocks is the one which multiplies its value manifolds over a period of time. In the Indian stock market, there are various stocks which have given manifolds growth but the critical part is to find such stocks when they are in the undervalued stage. That’s the time certain stocks, based on their competitive business advantage or any other stand out quality for that matter, betray the signs of exponential growth in the future. That brings us to the key question- how to find multibagger stocks? There is no easy answer to this question. In other words, there is no shortcut to finding a stock that can multiply the value of your capital. In fact, the route to the good growth is through detailed research and analysis.
Important Points To Check In A Company
1.Company’s Vision-The most critical part of recognizing a multibagger stock or any valuable stocks for that matter is that one needs to have a clear vision to understand where the company’s product/service would be in next 10-15 years. Analyse whether the business has the skills and management potential to stay ahead of the competition. Also, it pays rich dividends to read the history of the company’s promoters.While checking the career graph of the promoters you have to touch upon important elements to understand first,do the promoters have an excellent track record and do they have the fore sight to take the company ahead? Second, how much are the promoters holding and have they pledged any of their shares?
2.Competitive Business Advantage-One of the most important aspects that needs to be looked at to spot a multibagger is to find out a company with the competitive business advantage. The competitive business advantage simply means that the company enjoys a unique position that it doesn’t have any close competition. Also, it is giving excellent performance on the regular basis. Such companies have a fair chance of making the cut.
3.Important To Identify At Undervalued Stage-If you have to reap the maximum benefit of the company’s growth youhave to find them when they are not found by big investors. This isthe most important part of figuring out the worth of the stock youare investing in and whether it is trading at a fair price. One canrefer to the value investing strategy of Warren Buffett for findingthe fair price of the stock.
4.Valuation Is The Key-The difference between the revenue and expenses profit margin of the company. Any company that grows its profits regularly at the same time also manages costs will also have an expanding earnings margin.Typically, stock analysts regard this as a bottom line as its the last line on income statements. Another critical point is the P/Eratio. P/E ratio is one of the important pointers of relative valuation based on earnings. Return on equity (ROE) and Return on capital employed (ROCE) are some other ratios which are utilized to decide the profitability of a company. In the case of P/E, a high P/Eratio normally shows that investors expect a big growth in the future, therefore they might even be inclined to buy the stock at a premium. However, a high P/E ratio doesn’t inevitably mean that a company is overvalued, neither does a low P/E ratio mean that it is undervalued.
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