As the name suggests, multi-bagger is used for stocks which may create multiple bags (multiply money) over the next few years for an investor. This is the term mostly used to describe those stocks which have potential to report explosive growth over the period of time.
Pointers for Selecting Multi-bagger Stocks :
1. Debt level is important while looking for a multi-bagger:
What you are chasing after in a multi-bagger is a company that can multiply its worth several times over the next few years. People usually label this as a growth stock. This is then identified with a company which is growing its earnings by large amounts every year.
2. Check the quarterly performance (revenue):
The operating performance of a company should reflect in its multiples; if the multiples are low and the company is outperforming at operating level, then the upside for the stock would be significant.
3. Look for source of earnings of the company:
It would be better to look for the sources of earnings of the company. If you find that the potential to grow the business is huge in the segment where the company is operating, then it is better to take position now.
4. Earnings per share (EPS) and price multiples:
Give a look at the Basic Earnings Per Share (Basic EPS) and price multiples. Prices of the stocks change on the quarterly performance of basic EPS reported by the company. Investors should calculate the Trailing Twelve Months (TTM) basic EPS and revenue to calculate current Price to EPS (P/E) and Price to Sales (P/S) respectively.
5. Look for cues of capex, structural change from Quarterly presentations:
Finally the investors should read and understand the quarterly presentations uploaded by the companies on their websites. Investors would get the recent announcements related to capital expenditure, structural changes in the company, other management decisions, etc.
In order to study about multi-bagger stocks one can refer to the the below link where some of the stocks are already categorized as multi-bagger stocks.