How to pick Multibagger stocks?
The stock market is volatile in nature. The stock market has tremendous potential to generate the best return for an investor. You just need to find out various ways to pick the multibagger stock. You can multiply your amount of money just by selecting the right type of stock at the right time.
What is Multibagger Stock?
A multibagger stocks that give multiple returns to the investor in a couple of years. A multibagger stock can make you wealthy in a short period of time.
These stocks with strong growth potential are referred are Multibagger stock. However, it is a very difficult task to identify multibagger stock for the investment. You need to consider multiple factors such as earnings growth, P/E ratio, EPS, debt level, etc.
Here are some ways to identify and pick multibagger stocks.
Earnings per share (EPS) and price multiples:
EPS means total profit in the period divided by the number of shares. It indicates the profit allocated to each individual share of the company. It is recommended to buy stock with High EPS. It is one of the most common ways to find out multibagger stocks. To find out the multibagger stocks you have to pay attention to the Earnings Per Share (EPS) and price multiples. The prices of the stocks change on the quarterly performance of basic EPS reported by the company. Investors should calculate the Trailing Twelve Months (TTM) EPS and revenue to calculate current Price to EPS (P/E) and Price to Sales (P/S) respectively. If the company has started performing significantly well and its EPS is growing better than its stock price, then one could consider it a better chance for investments.
Debt levels should be reasonable:
It is one of the best ways to identify and pick a multibagger stocks. The company with no debt or reasonable debt levels is a must characteristic for searching multibagger stocks. Searching mutibagger stocks Check whether the book value is growing at the same rate as the EPS (Earning per share). If the EPS is growing at 30% p.a. then one should look at the debt and make sure that that is not growing at more than 30% p.a. Ensure that the balance sheet is strong and the debt is less than, say 30% of the equity. If EPS of share growing at 30% p.a then probably you are very much closer to finding a mutibagger stock.
Check the quarterly performance (revenue/EBITDA):
It is one of the appropriate ways of finding and picking up multibagger stock. To find out the multibagger stock check the quarterly performance of revenue, EBITDA, and net profit. Revenue and EBITDA are the two components that reflect a clear picture of the company’s operating performance in its segment. The operating performance of a company should reflect in its multiples; if the multiples are low and the company is outperforming at the operating level, then the upside for the stock would be significant.
Look for a source of earnings of the company:
Instead of looking at the bare earnings, look for the “sources” of earnings of the company. If you find that the potential to grow the business is huge in the segment where the company is operating, then it is better to take a position now. If you find that company has the potential to achieve growth in the business you should buy the stock irrespective of market capitalization. As it could be the next multi-bagger stock. Don’t focus too much on whether the stock is a large-cap, mid-cap, small-cap, or micro-cap. Instead, look at the scalability of the operations.
Structural change from Quarterly presentations:
It is one of the significant ways to identify and pick multibagger stock. Investors should read and understand the quarterly presentations uploaded by the companies on their websites. Investors would get the recent announcements related to capital expenditure, structural changes in the company, other management decisions, etc.
Quality of Promotors and Management capability:
It is one of the most important ways to identify and pick multibagger stock. Promoters a person that is fully responsible management activities of the company. You can get a long-term sustainable return from the stock if promoters above average quality. You can’t get a long-term return from poor management and promotor’s quality.