Multibagger stocks or Multibagger shares are, in simple terms, the equity shares of a company that generates or delivers returns multiple-folds which generally are pretty higher than its acquisition cost. The term was first coined by Peter Lynch in his book ‘One Up on Wall Street.
Multibagger shares or Multibagger Stocks are issued by companies with a lower market price of shares but have enough growth potential; they portray a sound management technique and innovative production techniques. It exhibits excellent technical research data and thus generating high demand for it in the market.
How to Identify Multibagger stocks?
Though it becomes really difficult to find multibagger stocks, and your stock broker in India might help, the multibagger shares that have delivered returns do provide us with certain characteristics such as
Advanced Research and Development skills
In this ever-dynamic world, a company’s growth is often judged by the volume of sales of its product, which can only be achieved by utmost customer satisfaction. This would require a good amount of resources in the research and development of the project to achieve high customer satisfaction and to be able to list their securities on the stock exchange as Multibagger stocks.
The businesses that come up with products with immense human potential with likely next to zero viable substitutes are more likely to generate tremendous demand for the product in the market.
There are businesses that have a monopoly or even a duopoly and can also be categorized as an issuer of multi-bagger stocks.
One of the easily identifiable characteristics of Multibagger stocks is their performance, i.e. the high growth of their issuing company. Businesses which have high-profit generation and have minimal debt on their books are most likely to issue multibagger shares. Multibagger Stocks also have high earnings per share, thereby increasing the dividend income of the investor; the businesses issuing multibagger stocks generally have a low debt-equity ratio and high Price to Earnings Growth Ratio (PEG), and returns are also substantial per unit value of the initial invested amount.
Great Management Team
Companies that issue multibagger stocks generally have trained and experienced managers. In the absence of trained managers, proper flow in the production chain cannot be maintained, as the chain between production and sales will be affected.
Examples Of Multibaggers in India
Ruchi Soya Industries
Ruchi Soya Industries has made its place in the edible oil business as one of the key players. Today Ruchi Soya is one of the leading manufacturers of edible oil and a pioneer of Soya-related food products in India. From Farm to Fork, they are present in every part of the value chain.
Patanjali Ayurveda Pvt Ltd’s consortium acquired Ruchi Soya for Rs 4350 crores.
After the FPO about five years ago, the shares of Ruchi Soya were trading at Rs 26.05 levels, and as of 22nd August 2022, they are trading at Rs1128 per share. That is a return of more than 4230%
Adani Transmission Limited
This Adani group subsidiary is involved in the generation, transmission, and distribution of the power supply to the northern, western, and central regions of India. It has a total transformation capacity of greater than 38600MVA and a total length of 18,500CKm
Within the last five years, the share price of Adani Transmission Limited rose from Rs 90.15 per share to Rs 3457, which is a return of up to 3834%
Tanla Platforms Limited
It is formerly known as Tanla Solutions, and it is a cloud communications provider; it enables businesses to communicate with their customers. India contributes to about 1/3rd of its revenue and the rest comes from other countries.
The share price increased from Rs 50.9 in 2017 to Rs710 in 2022, i.e. 1394% ROI
Adani Enterprises Limited
Adani Enterprises encompass a variety of businesses covering sectors like energy & utilities, transportation & logistics, and incubation. This brings Adani enterprises close to touching almost every Indian each day. It is also a market leader in large-scale infrastructure development in India.
Within the last five years, the share price of the company increased from Rs 121.55 to Rs 3056, delivering an ROI of about 2525%
Multibagger stocks help investors make money. The problem which stays is that they are challenging to find. To find a multi-bagger, one must understand the company’s earnings, growth, size, margins, future growth potential, competitive advantage, and many more to spot one potential multi-bagger. Sometimes even when an investor finds them, they invest but also exit when the market conditions are not favorable. Often these stocks do not give the desired returns for years, and then one year, they give multibagger profits.