If you have the habit of following stock market news, chances are that you’ve come across the term ‘multibagger stocks’. Analysts generally recommend investing in multibagger stocks since they offer higher returns and are considered to be more stable and less risky. If you’re wondering what multibagger stocks are and how to identify the best multibagger stocks to invest in, continue reading to find out.
The term multibagger stocks are used by analysts and stock market experts to denote a class of stocks that generate multifold returns over a few years. Here’s an example that can help you better understand the term.
For instance, let’s say that there’s a company that you’re interested in - ABC limited. The company’s share price is currently at Rs. 50 per share. Assume that the company’s share price goes from Rs. 50 to Rs. 500 in just 3 years. This is a great example of a regular stock that turned into a multibagger.
Generally, all multibagger stocks start off as small cap stocks that over a period of time become either mid-cap or large cap stocks. That said, not all small cap stocks have the potential to become multibaggers in the future. That’s why it is important to identify the right stocks that can potentially turn into multibagger stocks in the future.
There are certain things that you should keep in mind at all times to ensure that you only pick potential multibagger stocks. Here’s a quick look at a few of them.
1. The company’s business model
This is one of the most important factors that you should consider when trying to identify multibagger stocks. A company’s business model should not only be strong, but it should also be adaptable. A company that has a very stringent and rigid business model is likely to face tough challenges in the future. On the other hand, a company with a more fluid business model is likely to become a multibagger.
2. The company’s management
The second most important factor is the management of the company. A company is only as strong and robust as its management. Without experienced, resourceful, and thoughtful leadership, a company is not likely to make it big in the future. Therefore, a company should have a quick-thinking management that’s also honest and transparent.
3. The current business environment
Even if both of the above factors work in the company’s favour, if the current business environment is not favourable, chances of it becoming a multibagger would be very slim. Business environment includes the current economy, demand for the company’s products, customer demographics, and more.
While the above factors are crucial to identify the best multibagger stocks, they’re not the only ones. There are many more factors that you should also take into account. So, make sure to conduct a thorough analysis of the company before investing in it.
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