If you are planning to invest in stocks, it is imperative to first gain familiarity with the stock market. There are a number of stock market terms often used by financial experts about which many investors are not aware of. Multibagger stock is one such terminology that potential investors need to know about.
What are Multibagger Stocks?
Multibagger stocks are those stocks that can multiply your money over the next few years. These stocks are generally available at comparatively low prices but have the potential to grow and multiply in the coming years. Investing in multibagger stocks, India is all about recognizing today’s small cap stocks that are expected to turn into tomorrow’s mid cap or large cap stocks.
To make big returns in the stock market, it is important to focus on stocks from industries that are likely to bring maximum benefit. A thumb rule is – the stocks that performed extremely well in the last many years might not show the same performance over the next few years. For making a portfolio of multibagger stocks, the investors are expected to hold positions in quality stocks. Also, investors are often seen committing certain mistakes like investing a large share of money in a particular sector, a practice that needs to be dodged. Instead, investors should resort to diversification.
Why invest in Multibagger Stocks?
Wealth creation is one of the biggest reasons for investing in multibagger stocks in India. Investing judiciously in the stock market is the key to wealth creation. Finding multibagger stocks at an early stage and staying invested in them for a long period can get you success in the equity market. Moreover, a time duration of 10 years or beyond is a reasonable period to get impressive returns.
Investors often find it difficult to predict multibagger stocks. Listed below are some tips that can be very helpful when it comes to identifying multibagger stocks:
1. The industry potential
It is important to invest in a sector that has a high growth potential. When investing in multibagger stocks India, the growth potential of the sector must be identified much before investing. Also, investors are expected to keep a track of the latest developments taking place in the world of business. This helps to identify the growth prospects of an existing or emerging industry.
2. The performance of the company
Closely monitoring the quarterly net profit growth of a company can help you know the financial status as well as the future growth potential of an organization. While analyzing the quarterly performance, make sure the net profits have increased consistently. Also, ensure that the growth of the company should not be because of currency fluctuations or sale of an asset.
3. The debt levels of the company
The debt level of the company is another important factor that needs to be considered. The stocks of a debt-ridden business are not likely to provide multiple returns. Hence, it is advisable to look for a debt-free or low debt company. Moreover, the organization should have a strong balance sheet and the debt should not be more than 30% of the equity.
4. The expansion plans for future
In order to grow, the organization must possess a solid future expansion plan. Is the company well-resourced to deal with the changing market trends? Is the company planning to launch new products or services? These are some significant questions that need to be answered before you invest in the stocks of a company.