How to find Multibagger stocks- A complete step-wise guide for Retail Investors

Important and necessary points to consider while picking the multibagger stocks. A complete procedure to identify multibagger stocks with Dos and Don’ts.

  • 26th May, 2019

Multibagger stocks are those who can give higher return over a short period of time. If you follow certain basic steps and then select the stock instead of select the stock randomly, you will get maximum return with minimum risk. If you are a beginner (new to stock market) or retail investor then we recommend you to read the article- “Stock Market Business- How to do business and 7 key points to Remember” first; it will take hardly 5 minutes but we guarantee that it will change the way you look at the Stock Market. Generally, newbies and retail investors do not take stock market investment as seriously as other investments. Investors have to take the stock market investment as a business to create wealth from it and be a business minded person before start investing into the stock market. Here, we try our best to satisfy your curiosity and give you what you exactly want.

Following is the 5-steps procedure to identify and invest in the multibagger stocks:

  1. Identify Business/sector

    • Look for the sector which has the potential to grow in upcoming years. Observe your surroundings, and identify the businesses/sectors which are the demand of current time.
    • Do not fall in love with any sector/business. Focus on the business that may have a bright future instead of the business which had the best past.
  2. Do Fundamental Analysis

    • Focus on the stocks that have good fundaments. You need not be a master of fundamental analysis but at least you have to focus on key fundamental attribute to identify whether the company’s financial status is good or bad.
    • Revenue: It is the net sales of the company. A Good company is the one whose revenue is continuously increasing in every quarter. If one or two quarter’s revenue is down then it is ok, but one should avoid the company whose revenue is not consistent or decrease continuously
    • Profit: Avoid the company which makes loss continuously in every quarter. We do not give much importance to fluctuation and inconsistency in profit due to various reasons. You should give importance to Revenue growth than Profit growth
    • Pledged shares: One should avoid the company who has pledged shares. If all other factors of the company are good then small amount of pledged shares is acceptable.
    • Debt/equity ratio: It is highly desirable that the company has low debt/equity ratio. Avoid companies who have high debt/equity ratio. If you are looking into financial sector then you can compromise with debt/equity ratio up to certain limits.
    • Return on Equity (RoE): It is also considered as Return on Net-worth. It indicates how efficiently company’s asset is used to generate profit. Avoid the stocks who have consistently low RoE.
    • Price to Earning (P/E) ratio: PE ratio denotes the valuation of the stock. PE >25 is not desirable as its valuation is very high. But, if all other factors are good then you can compromise with PE upto certain limits depends on certain factors.
    • Promoter’s shareholding: It indicates how promoter looks at his/her company. If the promoter’s share holding is decreasing in every quarter or sharp fall in promoter’s holding in any quarter then avoid that stock. You can compromise with this factor if you know the reason behind the decrease in promoters’ shareholding.
    • Above fundamental analysis is sufficient for small/retail investors and newbies. If you want to analyze further, analyze the balance-sheet and profit-loss statements of the company.
  3. Do Technical Analysis

    • Only fundamental analysis is not enough to pick best multibagger stock. You should know the price-action of the stock. You should be aware of the current trend of the stock whether the stock is in bear phase, bull phase, up trend, down trend, side-ways, consolidation phase, bottoming out, topping out, etc. You need not to be a master of technical analysis but at-least you should be able to identify the trend of the stock.
    • Basic technical analysis concepts are trade-line, moving averages, support and resistance. At-least you should have knowledge of these concepts.
    • Technical analysis helps to choose the right entry and exit from the stock.
    • If a stock seems to have good fundaments but still it is in down trend, then avoid the stock as someone (smart investors or institutes) is selling the stock continuously. It means there is something that we don’t know but smart investors know. Avoid these stocks.
    • Do not buy the stock which is at 52 weak low. Because you cannot know the bottom of the stock. If you still interested in such stock then first let the stock price settle, let the stock bottom out, be patient and wait for start of uptrend and then make your entry.
  4. Mentally prepare yourself

    • Before start investing in any stock, first convince yourself. Ask yourself why are you investing in that stock? If you receive the convincible answer then only invest in that stock. It helps you to gain confidence about your investment.
    • Patience is the most important characteristic of the Investors. Remember, Investment is done to create wealth and wealth creation requires time. Generally what people expect from the stock market is, “today I buy the stock and from tomorrow, stock will start to move up”. This is not the way how stock market works. You have to control your emotions and be patient if the stock falls. Remember, stock market do not move in straight up direction.
    • Keep feasible and realistic expectations. Do not make unrealistic expectation because it will hurt you if your expectation will not be satisfied.
    • If stock price falls below certain levels, don’t hesitate to exit from your positions. Be mentally prepared to exit with loss.
    • Avoid imposing your thoughts on the stock market; instead listen to the stock market. Try to extract the message behind the price movement in the stock and then take decisions. This thing comes with experience but at-least keep yourself ready to learn from your experience.
  5. Keep cash in hand (Money Management)

    • Don’t invest all your money in one go. Keep cash in hand so that you can invest when opportunities will come.
    • Know your financial status, know how much loss you can bear, know your investment time horizon and then decide how much amount you should invest in the stock market.

Find the list of best multibagger stocks here. Keep above information in mind and analyze the stocks in the given list. Definitely you will find something new and interesting which gives you lots of self-confidence.

Concluding all, do the homework prior to make the investment, do the money management and invest with confidence and be patient. We hope, you had found the answer of your questions.
Do the business and Business will reward you...!