In the realm of financial success stories, few stories captivate investors quite like the story of the Multi-Bagger. The term refers to a stock that skyrockets in value, reaching at least double its original price. Think PFC, REC (NS:), BSE, CDSL (NS:), etc. – just a few of the big names.
But how common are these astronomical achievements and, more importantly, how can we detect future stars?
Diving into the universe of multibaggers reveals a fascinating reality: To find multiple earnings growth in the small- and mid-cap space by the end of 2023, we’ll have to go back to the Covid-19 era. What’s really remarkable is that some stocks didn’t just double or triple in value during this era—they skyrocketed more than tenfold. This is a testament to the robust growth potential of the stock market, which is known to deliver around 12% annual returns.
Every investor dreams of finding that diamond in the rough – a stock bought at a bargain price that will later rise to stratospheric heights. But what sets these gold opportunities apart from the rest and how can investors identify them?
Discovering the Next Big Event
While there is no magic formula, when studying historical multipackers, certain traits often emerge:
1. Consistent growth. Companies that demonstrate consistent earnings growth, especially bottom line growth, often stand out from their competitors.
2. Attractive valuation: Look for stocks with attractive metrics, such as low price-to-earnings (P/E) ratios.
3. Small market capitalization. Smaller companies, typically with market capitalizations below $500,000, have historically shown greater potential for explosive growth.
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Achieving multiple growth often involves sustainable earnings growth, attractive valuations, and the ability to start from humble beginnings, often in smaller companies.
So how can investors create a list of such potential investors?
Harnessing the Power of Data
Tools like InvestingPro allow investors to set filters to identify stocks with characteristics similar to historical multibaggers. Using filters like
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cumulative annual profit growth of at least 20% over the past five years,
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P/E ratio from 5 to 10
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Market capitalization below $500,000 crore
Image source: InvestingPro+
The million dollar question remains: will any of these contenders become the next multi-bagger? Only time holds the answer. But among the top three candidates on our watch list, there 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