Introduction to Multibagger Stocks
The term ‘multibagger’ was coined first by Peter Lynch in his book ‘One Up On Wall Street’, referring to stocks that return many times over the original investment i.e. more than 100%. ‘Multibagger stocks’ is now a jargon in the Indian stock market that describes stock ideas that keep giving high returns in a relatively short time. One can consider these stocks to be the unicorns of the stock market: ideas that give more than 100% returns on their current value in a short time.
Understanding Multibagger Stocks
Multibagger stocks are not a specific category of stocks, but instead describe the nature of the stocks that have great potential to raise funds for the company and grow exponentially, thereby providing greater returns each time. These stocks are not picked on the basis of the nature of the company or its valuation; these stocks are often undervalued and grow in high-growth industries and emerging markets, like India. They take a long time to show results, but as they start, the stocks become multibagger securities. There are many factors that determine what stocks may become multibaggers and what do not; and often these stocks are the most mainstream ones either, though that can be likely. The PE ratio, price to book ratio and other parameters are indicative of the stock’s potential, based on which investors can choose to invest in such a stock while also assuming the related risk. Low priced stocks do not ‘grow’ into multibaggers either. Some essential points to keep in mind while factoring on multibagger stocks is to look at its PE ratio, its performance over the previous quarters, debt to equity ratio and revenue multiples. Picking a stock, undervalued or at its current price, and reading why the stock is trading at that price can yield new findings in the stock’s fundamentals.
Highlights of Multibagger Stocks
The biggest virtue of a multibagger investor is their patience due to the sheer amount of time these stocks take to show value. Companies with strong competitive advantages in the growing market can boost the growth of the stocks.
