A Personal multi-bagger Buffett one can think of when it comes to Pick the best Multibagger Stocks
It is true that unlisted companies are growing at a faster than average growth rate driven by increased penetration or adoption rate among their customers. Unlisted companies employ new technology that is more productive and efficient than existing technology, thereby giving the company an edge over others and is driven by increased adoption.
“The events of the 2022 stock market have left many investors feeling discouraged and perhaps unsure about what the new year could hold. While there is no guarantee that the volatility will abate in the months ahead, history has taught investors time and time again that the only way to sustain returns and build a profitable portfolio is to stay invested through the ups and downs of the market”
Over the past few years, there has been a marked increase in the hyper-growth of unlisted companies across India. First coined by Alexander V. Izosimov, “hyper-growth” refers to the steep part of the S-curve, where industries and firms grow at an explosive pace. Businesses rapidly expand, company valuation skyrockets, and the compound annual growth rate (CAGR) hits 40%+.
The Most Overlooked Ingredient of a Multibagger Stock
If investment grows by 25% per annum for ten years, your capital swells to 9.3 times its initial size. That’s a fabulous result whichever way you look at it. Market insiders wistfully refer to those kinds of returns as ‘multi-baggers’. For many investors, this is the ultimate goal – the holy grail of investing.
So, what does it take for a stock to deliver a scorching appreciation of more than 25% per annum?
We take stocks that make up the BSE 100 index and look at which of them have been able to deliver multi-bagger returns to investors over the past ten years. From the hundred stocks that make up the BSE 100 index, only 18 have delivered returns greater than 25% per year.
Invest simply for better returns!
Simpler and disciplined investments can help portfolios perform well over a period of time, according to wealth advisers Kirtan Shah and Ashish Shanker. Most investors think that the key to a high-return stock is always earnings growth, so that is what they focus on when they look for holy-grail stocks. That may be true in our results, but it is far from the complete story…
Many ‘growth stock’ investors are ready and willing to pay almost any price for a stock as long as earnings are expected to grow at a high rate. But as our results show, if you’re looking for multibagger stocks, they need two ingredients: high growth rates, yes, but also expanding PE ratios.
And for the latter to work in your favor, the price you pay for the stock is important. Because it is only your purchase price that will determine whether there is enough scope left for a PE expansion to take place. So be sure not to overlook this important factor while searching for the next multi-bagger stock.
Businesses that can grow faster than average for long periods tend to be rewarded by the market, delivering handsome returns to shareholders in the process. And, the faster they grow, the bigger the returns can be. Despite their premium price tags, the best growth stocks can still deliver fortune-creating returns to investors as they fulfill their awesome growth potential.