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Multibagger Stocks | Meaning & List

What exactly are Multibagger Stocks?

Multibagger Stocks

Multibagger stocks are equity shares in a firm that provide returns that are multiples of the cost of acquisition. Peter Lynch devised these stocks, which he presented in his book ‘One Up on Wall Street.’

Multibagger shares are issued by firms that have great development potential and use solid management and manufacturing processes. It also demonstrates a company’s superior research and development capabilities, allowing this product to create great market demand.

However, in certain cases, Multibagger stocks 2022 may signify an economic bubble emerging in a country, which may have long-term negative consequences on a country’s financial sector.

How to Spot Multibagger Stocks

  • The company’s debt level should be within appropriate limits: Debt levels vary by business. However, as a rough guideline, debt should not exceed 30% of equity value.
  • Examine prior quarter performance: Examine the company’s sales multiples on a quarterly basis. If the multiples are low but the firm is operating well operationally, this might be an indication that the company has tremendous upside potential.
  • Profits sources: In addition to the sales figures, look at the earnings sources. Is the primary revenue category expected to increase at a macro level? Are the company’s operations readily scaleable? If so, the stock may be a multi-bagger.
  • Earnings and price multiples: Determine the current PE and price/sales ratios using the trailing 12-month EPS and revenue. If the PE ratio rises faster than the stock price, the stock has a good probability of becoming a multi-bagger.
  • Examine business model/CAPEX/structural/management changes: Keep an eye out for any substantial changes in the quarterly results/annual reports that might have a big influence on the company’s operations.

What qualities should a company have in order to generate multibagger shares?

Multibagger stocks 2022 are connected with massive returns on investing. Such benefits may only be realized if a company possesses particular traits, such as:

  • Advanced research and development capabilities

A company’s rapid expansion is linked to a vast volume of product sales in the market. To do this, such businesses must produce high-quality items while delivering exceptional customer service. Companies must make significant investments in product research and development in order to list their securities on the stock exchange as Multibagger equities.

Start-up enterprises that debut items with a large consumer utilization scope and no comparable substitutes are likely to create significant market demand. These corporations can expand their paid-up capital by issuing Multibagger stocks.

Companies that have a monopoly or duopoly in the market can also be characterized as issuers of Multibagger shares. Companies can boost their total income creation by implementing aggressive pricing methods in conjunction with entry limitations.

  • High growth

By examining the performance of the issuing firm, you may readily find Multibagger stocks. Top candidates are companies that have great profit creation and low debt obligation. Multibagger shares also offer high earnings per share, which increases your dividend income on the amount invested. These businesses often have a low debt-to-equity ratio, demonstrating superior financial management abilities. The price-to-earnings growth ratio (PEG) is likewise strong, indicating that the returns on a single unit of a share are multiple times the initial investment.

  • Excellent Management Capabilities

Companies with qualified and experienced managers issue multibagger stocks. Inefficient management makes it unlikely that correct flow will be maintained in the production chain since coordination between the production and sales chains will be defective. Several analysts are also engaged by such organizations to determine ideal pricing levels in order to maximize revenue.

Why Should You Buy Multibagger Stocks?

Multibagger stocks are renowned to double your wealth exponentially because the returns on such investments are enormous. For example, you may invest Rs. 200 in such shares and earn Rs. 2000 in returns (ten times the original amount – ten-bagger stock).

However, to assure significant capital gains through turnover of money to final items sold in the market, investments in multibagger shares must be held for a short period of time. Funds generated from the stock market listing are used for both research and development and product production, successfully realizing significant profits through huge sales volume.

What Is the Risk of Investing in Multibagger Stocks?

Multibagger stocks in India must be acquired in bulk in order for a person to build wealth. As a result, an individual’s loss would be significant if he or she gets caught in a market slump.

Many investors who purchase Multibagger shares may become entangled in an economic bubble or value trap. Companies selling at high prices may be indicative of the emergence of an asset bubble in the country, in which the product being made is in great demand owing to underlying market circumstances. When the bubble bursts and the asset value spirals, a person will suffer significant losses.

Similarly, value traps are becoming more common in Multibagger stocks. Products made by a corporation may appear to be a successful investment option in the short term, but they will result in losses in the long run. Investors anticipate that the prices of such shares will skyrocket in the future. However, this circumstance does not emerge since the asset has no inherent value.

Before investing in Multibagger stocks, investors should thoroughly examine a company’s financial statements as well as the current health of the stock market.

What Similar Investment Options Do Individuals Have?

Individuals who are risk-averse yet want to engage in stock market investing might add the following instruments to their portfolio:

  • Debt financing

These Mutual Funds’ assets are mostly made up of debt instruments issued by a firm. Debt financing is a liability for enterprises, thus it is returned first through revenue production, decreasing related risks.

Individuals with a low-risk tolerance can invest in the different debt Mutual Funds registered with SEBI over the Multibagger stock list in India. Portfolio managers of such funds also incorporate various government securities and liquid money market instruments to achieve maximum return realization with the least amount of risk.

  • Hybrid Investment Funds

These vehicles, sometimes known as balanced advantage funds, seek to achieve the best possible balance of risk and return. Such funds’ portfolios contain both equities and debt securities. Massive profits may be gained from the equities stocks in the corpus, but the volatility of such funds owing to market effects can be reduced by the presence of debt-oriented securities.

  • Large-cap mutual funds

Multibagger shares are typically issued by firms that are just entering the market, raising the risk level of investing. Large-cap funds, on the other hand, invest in equity securities of firms with a market capitalization of more than Rs. 20,000 crores.

These firms have a well-known reputation and show financial strength, which reduces the likelihood of earning low returns. Large-cap corporations have the financial resources to endure any stock market slump, assuring investor capital preservation.

Multibagger stocks in India are perfect for investors looking to significantly grow their wealth through capital appreciation of particular assets. Because these equities have an added value that is several times the cost of acquisition, the capital gain gains realized are enormous. However, investors must be willing to accept the accompanying risks.

Best Multibagger Stocks to Purchase

Sr. NoCompany NameBSE Scrip CodeNSE SymbolCMP (Sept 2022)RatingIndustry
1Adani Gas542066ADANIGAS3,683.102Oil & Gas
3IRCTC542830IRCTC705.051Travel Support Services
4Mishra Dhatu Nigam541195MIDHANI225.52Iron & Steel Products
5Ultramarine & Pigments506685Not in NSE370.051Speciality Chemicals


Reminder from Behindyourgoals

The information should not be interpreted as a recommendation, an offer to buy or sell, or the solicitation of an offer to buy or sell any security, financial product, or instrument, or to engage in any trading strategy. Readers should seek their own counsel.

Thank you for your time reading this! I hope you enjoyed our Article and gain knowledge that you will find useful in the future. Behindyourgoals have more articles related to finance, cryptocurrency, earning money & much more.

By Anchal

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