When investing in stocks, you might want to invest in the ones that multiply money quickly. Such stocks are known as multibagger stocks, a terminology often used by stockbrokers. However, identifying such stocks can often be a challenging task.
What are Multibagger Stocks ?
The stocks that are either in small cap, mid cap or large cap and have the potential to grow and multiply its share price over the next few years are known as multibagger stocks. Generally, this term is used for a stock that ensures a return of more than 100%. They generate impressive returns that make multibagger stocks in India, a significant part of every investor’s portfolio. When it comes to long-term wealth creation, these stocks can prove to be very useful.
Almost every investor prefers to invest in multibagger stocks, the real challenge lies in identifying them. It is difficult to predict which stock will ensure multiple returns in the future. As a result, many investors rely on stockbrokers for multibagger recommendations. Also, one needs to consider a number of parameters to recognize such high growth potential companies for investment. Here are some tips that will help you identify multibagger stocks:
1. The industry potential
It is advisable to invest in an industry that shows high growth potential. For investing in multibagger stocks, it is important to identify the growth potential of the industry. Keep a track of the latest developments taking place in the world of business. This will help investors to recognize the growth prospects of an existing or emerging industry.
2. The debt levels of the company
The debt level of the company is another important factor worth consideration. Identify companies that are growing at a rapid pace and have zero or very less debt. They are considered good for medium to long term investment. The stocks of a debt-ridden company are questionable when it comes to providing multiple returns. Prior to investing your money, make sure the company has a debt of less than 30% of the equity.
3. Earnings per share (EPS)
Earnings per share or EPS refers to the percentage of earnings received by the shareholders per share. It can be calculated simply with total profits divided by a number of shares outstanding as on the closing date of books. Potential stocks can be identified where companies are growing at greater than 30% of EPS every year.
4. The performance of the company
Checking how the company is doing in terms of revenue and net profits is of utmost importance. The quarterly net profit growth of a company shows its financial status and future growth potential. Make sure the net profits of the company have increased consistently. Moreover, look at the earning sources of the company.
5. Keep a tab on company’s investments and structural changes
There are companies who keep investing in innovative products that give benefits in the subsequent years. Keeping a tab on such investments will help you invest in multibagger stocks in India at the right time.
With these multibagger stock tips in mind, you will be able to identify the right stocks to a large extent. These days, a horde of investors are chasing these stocks but face difficulty when it comes to identifying them correctly. The right guidance and knowledge can help you make the decision in a better way. If you want to get high returns in future, look at these stocks from the perspective of long-term investment.