Multibagger stocks are those stocks whose market capitalization has grown exponentially over a period of time. Here, you must understand that the market capitalization is synonymous with the value of stocks. In tune with the growth in market capitalization or value, the stocks can be called two-bagger (in case of double growth in value), three-bagger (in case of tripled market value, four-bagger (in case of quadrupled growth), and so on. While selecting multibagger India stocks, you must keep in the mind the following factors:
According to experts, you must invest in the stocks of those companies having a high potential for growth. Stocks of big companies exhibit stable movements and are unlikely to become multibaggers. But smaller companies, having rapid growth rates, are expected to become multibaggers. Before investing in the shares of these companies, you must look at variables such as fundamentals of the company, growth rate, product offerings, etc.
Always consider the earnings of a company to know whether they have the potential to become multibagger stocks in India. Usually, multibagger stocks will exhibit a high revenue growth along with a viable profitability model. Such companies also have a superior capital allocation framework vis-a-vis other companies.
To identify multibagger India stocks, look whether the company has a sustained high margin – without fluctuations – over a period of time, say three to four years. If the margin fluctuates every quarter or year, then these stocks will, more often than not, won’t rise on to become multibaggers. Remember high margins are directly linked with the efficiency of a business or a robust business operating framework along with a good position in the respective segment/industry.
Innovative products and services:
Another key factor to identify multibagger India stocks is to keep an eye on the products and services of companies. Those taking a lead over their competitors by providing unique and path-breaking products and services will always have the edge to become multibaggers. You can glean the company’s innovations by considering factors such as their research and developments, patents, etc.
Generation of free cash flows:
Free cash flow is defined as the cash flow from operations after deducting the purchase of fixed assets. The defining feature of multibagger stocks in India is the ability of a particular company to generate free cash flows, over a period of time. Sustained free cash flows will allow any company to remain relatively debt-free, along with having sufficient funds for expansion of business operations.
To identify multibagger shares, always remember to factor return ratios such as Return on Equity (ROE) and Return on Capital Employed (ROCE). Both the ratios will show the complete financial performance of a company. These can also be used to evaluate the operational efficiency of a company along with gauging its future growth potential.
Now that you know, how to identify multibagger shares, here is a look at the most probable multibagger stocks to buy:
The first in the list of expected multibagger India stocks is Swaraj India in the engine sector, with a market capitalization of Rs. 1,759 crores. It manufactures diesel engines along with other highly specialized engine parts. The diesel engines of this company are used in tractors. The company has sound fundamentals along with a robust balance sheet, high profitability, and free cash flows. With the government’s decision to hike the Minimum Support Price (MSP) of crops, the forecast of a normal monsoon, and good production of Rabi crops in the country, the company is expected to perform well in the future. At present, the company stocks are being traded at reasonably lower valuations.
Hawkins Cooker Ltd:
The second in the list of probable multibagger stocks is Hawkins – a key player in the durable sector. It is primarily engaged in the manufacturing of pressure cookers and cookware. From 2017 to 2020 – considering the sales growth – the company has surpassed the market leader, TTK Prestige in both segments. The company has a market capitalization of Rs 3,232 crores. It has a robust balance sheet along with higher profitability and free cash flow. With the increase in LPG penetration – of up to 95% in 2020, along with the rise in demand for kitchenware products after the pandemic, the company is expected to be on a higher growth trajectory.
The third in the list of expected multibagger stock in India is Gujarat Gas. A company in the gas distribution sector, it has posted a robust volume growth in the second quarter of Financial Year 2021. The company’s production volume stood at 9.85 Million Standard Cubic Meters Per Day (MMSCMD), which was its highest volume ever. In the same time period, it reached the highest margin of 29%. Having a market capitalization of Rs. 26,021 crores, Gujarat Gas has posted a Compounded Annual Growth Rate (CAGR) of 20% in the last two years. The company is expected to grow in the future as well, considering the low prices of imported LNG, a decrease in the price of other expenses, and high industrial growth rate in the state.
The fourth in the list of probable multibagger shares is a Persistent System in the IT segment. This company is a leading presence in segments, like Hi-tech, manufacturing, and life sciences, with a market capitalization of Rs 11,613 crores. These segments were least affected during the pandemic. It has posted a quarter-on-quarter dollar revenue growth of 3.1% in the second quarter of Financial Year 2021 along with improved margins. The company is expected to show strong revenue and earnings in the future because of winning a strong deal, zero impact of the pandemic, improved functioning of current projects, and expansion of margin.
A key player in the healthcare sector, the company has a market capitalization of Rs 10,473 crores. Being a leading pathology center in the country, the company has a robust balance sheet along with a stable margins profile and a good CAGR. The growth rates are likely to continue in the future as well.
Thus, multibagger shares can be a viable option for making investments. But you must consider the vital benchmarks of a particular company to identify a real multibagger stock. Also, you need to invest in these stocks with realistic expectations and a long-term investment horizon. Before investing in stocks, always remember to choose a trusted and reliable financial partner. Look for features like all-in-one trading platforms, free Demat and trading accounts, flexible brokerage fees, cutting-edge technology, in-depth market reports, and so on.