Multi bagger stocks are equity shares of companies that offer returns several times of the stock prices. Such stocks can be seen in high-growth industries, however, only a few stocks can be multi baggers that help to improve portfolio returns. Companies that have good fundamentals, strong management and corporate governance practices, and whose stock prices are relatively undervalued, tend to have Multi bagger stocks.
There are various ways of identifying stocks that have the potential of becoming a multi bagger in India. One of the most important ways of analysing and identifying multi-bagger stocks is to look at the company’s future earnings growth. A company’s historical growth must be taken into consideration to project future growth prospects.
Most Multi bagger companies depict similar characteristics with regards to company and financial aspects. Here are some common guidelines that can help an investor in identifying a multi-bagger stock:
Multi bagger stocks have the potential to substantially increase an investor’s wealth since these can bag exponential returns. Investors who are looking for substantial wealth creation and can take on higher risks can invest in multi bagger stocks. These stocks may not always give dividend income, therefore, investors who want regular income through their investment may not benefit from multi bagger stocks.
Before investing in potential multi bagger stocks, investors should know of the following associated risks:
Investing in a potential multi bagger stock requires patience and the investor’s ability to hold the investment through market volatilities, since the company may take many years to establish itself as the sector leader.
Investment in multi bagger stocks should be held for the minimum duration to ensure sufficient capital gains. While it is tempting to look for multi bagger stocks, investors should also limit the investment proportion in potential multi baggers such that it does not impact the overall portfolio in case of loss or insufficient gains.
Before buying stocks, investors must consider their investment time horizon, investment strategy, company fundamentals, the historical performance of the stock, company size, dividend history, among other factors.
Depending on the stock price, you can invest Rs. 100 in a potential multi bagger stock. The amount of investment also depends on your investment goals.
Stock market earnings of investors depend on how proficient the stock selection mechanism is, the study of company fundamentals, experience in stock markets, among other factors.
Capital market risks, inflation risk, liquidity risk, company risk are some of the common risk factors associated with stock market investments.
Beginners can invest a small portion of their investment portfolio in stocks. This helps in limiting the risk level. The other alternative is to invest in equity mutual funds, which eliminates the need of identifying individual profitable stocks.
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