Multibagger stocks are a great investment for creating wealth. But it is very important to identify them before other investors do and buy at the right price. Multibagger stocks like Infosys, Wipro, MRF, Maruti, Eicher Motors, Symphony and Page Industries have created huge fortunes for investors who bought them at an early stage and remain invested in them for a long term.
Anybody can create wealth by investing in multibagger stocks. But the biggest question is how to know if a stock is a multibagger?
To identify multibagger stocks investors need to do some homework. Before proceeding further, it is important to understand first what a multibagger stock is.
Multibagger stocks are stocks of companies that are trading below their actual intrinsic value, have strong fundamentals, are professionally well managed and have a business model that can be spruced up within a short span of time.
Here are few pointers which can help you to know if a stock is a multibagger
• Multibaggers are mostly found in small cap sector shares:
Small cap companies which are in their initial stage of development, with positive cash flows and the potential to grow their revenue and profits at fast rates, have huge potential to become multibagger stock with time.
• Companies with zero or low debt:
Companies with zero or low debt have the potential to become multibagger stocks because the company is in a position to use its profits for further growth or rewarding the investors. On the contrary in case of company with high debt, the profits goes into marginalizing the debt level.
• Companies with exclusive advantages:
Companies which offer an exclusive product or service with high demand and low competition have the potential to become multibagger stocks with time.
• Professionally well managed companies:
Companies which are well managed and have a visionary management have the potential to become multibagger stocks.
• Companies with high return ratios:
High return ratios indicate high returns on the capital employed. It also indicates that a company is allocating its capital efficiently.
To conclude it is not easy to know if a stock is a multibagger. But if you know how to identify a multibagger stock, it can create immense wealth for you. The above pointers can help you know if a stock is a multibagger stock on your own without depending on multibagger stock recommendations given by others.