Professional Documents
Culture Documents
2017 02 27 Eight Simple Cues That Can Tell You If A Stock Is Multibagger in The Making - The Economic Times PDF
2017 02 27 Eight Simple Cues That Can Tell You If A Stock Is Multibagger in The Making - The Economic Times PDF
ArunThukral
MD&CEO,AxisSecuritiesLtd.
Thukralhasover23yearsofexperienceinthefinancialservicesindustry.Hehas
beenassociatedwithAxisBanksinceitsinception.Earlier,hewastheheadof
resources&strategicinitiativesatAxisBankTreasury.Heisacertifiedassociate
ofIndianInstituteofBankersAssociationandisacertifiedfinancialplanner.
Eightsimplecuesthatcantellyouifastockismultibaggerin
themaking
ETCONTRIBUTORSUpdated:Feb27,2017,11.49AMIST PostaComment
TheysayRomewasnotbuiltinaday.
RELATEDCOMPANIES EXPAND
Amultibaggerstockdoesnotmaterialiseinasnap. HeroMotoC
Forastocktomultiply,say10timesor100times,overtimeandgiveastoundingreturnsto EicherMoto
investors,itrequiresmultipledrivers.
AssemblyElections2017:
IsModionaroadtonowhereinUttarPradesh?
Amultibaggerideaisakintoabambootreeyoutakealittleseed,plantit,wateritand
fertiliseitforfiveyearsbeforethetreesproutsandgrows100feetinsixmonths.Allthese
fiveyears,thebambootreeformsandstrengthensitsrootsandgivesitallthatittakestobe
strongandsurviveforlong.
Multibaggersarestocksthatevolvegraduallytheywillnotgivereturnsimmediately,whenyouinvestinthem.Astructurallystrong
companywithgoodmanagementandfuturestrategycanpotentiallyevolveintoamultibaggerovertime.
So,whatreallymakesamultibagger?
Growingindustry:Thefirstcriteriaisthatawouldbemultibagger'stockoughttobeinasectorthatexhibitshighgrowthrateandthat
paceofgrowthshouldhavelongevitytolastfordecades.Thesourceofearningsshouldbeclearlydefined.HeroMotoCorpcameupwith
itsbikeswhenthemarketwaspredominatelycontrolledbythegovernmentlicencees.Theindustrywasmigratingfromscootersto
motorbikesandgrowingatdoubledigitsowingtoarisingmiddleclassandayoungpopulation.Thestockhasgivenstupendousreturns
overthepast33years.
Businessopportunity,scalability,sustainability:Ifthecompanyisoperatinginanindustrywithhugegrowthpotential,ithasgreat
future.Themarketcapitalisationisnotaconcernforsuchaninvestment.Hugebusinessopportunityalongwithscalabilityand
sustainabilityofacompanycancatapultastockintounimaginedlevels.Ifacompanywithanymarketcapitalisationbeitlargecap,
midcaporsmallcaphasthetailwindsoftremendousbusinessopportunity,itcanbecomeamultibagger.Example:theITindustryin
2000.
Qualityofmanagement:Investinginequitiesislikepartneringinabusiness.Onemustbeverychoosyaboutwhomheispartneringwith
whilemakinganequityinvestment.Thepromotersarepersonsresponsiblefordaytodaymanagementofthecompany.Ifthe
managementisvisionaryandethical,therearehighchancesthattheywilltakethebusinesstoplaces,thusmakingtheinvestmenta
multibagger.Corporategovernanceisofutmostimportanceasthebusinesswouldnotgrowwithoutgoodmanagement.
Economicmoat:Amultibaggercompanyshouldhavewhatiscalledmoati.e.anentrybarrierthatwouldpreventcompetitionfrom
encroachingthemarket.Itcanbeintheformofabrandimage,patentorIP.Thismoatgivesthecompanypricingpower,whichcanhelpit
protectmarginseveninadverseconditions.Ifthecompanyhasauniquebusinessmodeloranydisruptivebusinessmodelthatenablesit
tocapturemarketattheexpenseofitscompetitors,saythenewTeslacarsintheUS,therearehigherchancesofitbecominga
multibagger,ifspottedattherightprice.
http://economictimes.indiatimes.com/markets/stocks/news/eightsimplecuesthatcantellyouifastockismultibaggerinthemaking/printarticle/57370 1/2
2/27/2017 EightsimplecuesthatcantellyouifastockismultibaggerinthemakingTheEconomicTimes
Highreturnratios:Companieswithhighreturnratiosgenerategoodreturnsonthecapitalemployed.Oneshouldneverlookat
companiesthathavelowreturnratios.Moreover,returnratiosshouldbeshowinganincreasingtrendshouldnotbeflatorbeonafalling
trend.Goodreturnratiosalsoindicatethatacompanyisallocatingitscapitalefficiently.Ahighreturnratioisabindingrequirementfora
multibaggerstock.
Lowequitylevels:Companieswithhugeequityseldombecomemultibaggers.Itisoverownedbyinstitutionsandthereissufficient
suppliesateverypricerise.Companieswithsmallerequitieshavehigherchancesofbecomingmultibaggersbecauseofhighreturnratios,
especiallyRoE,andtheriseinEPSissharpwitheveryslightincreaseinprofit,exampleMRF.Alwayslookoutforcompanieswithalow
equitybasecoupledwithhighreturnratios.
Debtlevels:Debtfreecompaniesorthosehavingnegligibledebthavethecapabilityofcreatinghugewealth.Beingdebtfreeorminiscule
debtonthebooksenablesafastgrowingcompanytoploughinalmostalltheearningsforgrowthinsteadtopayingfordebtservicing.For
acompanythatisdebtfree,therevenuegrowthratewillpercolatedowntoearningsifithascontroloveritscosts.
Futureplans:Stockpricesareslavesofearnings.Anydevelopmentthatcanenhanceearningsofacompanycausessharepricetorise.
Solidexpansionplans,structuralchangesinbusinessmodelsandlaunchofnewproductscanhavematerialimpactontheshareprice
andareprimerequirementsforcreatingmultibaggers.Ifcombinedwithhugeopportunity,thenewplancanchangetheearningstrajectory
ofthecompany,makingitapossiblemultibagger.E.g.EicherMotorsatthetimeoflaunchofnewenginesforitsflagshipproduct.
Therightwaytospotmultibaggersistochoosecompanieswithsmallmarketcapalongwithlowinstitutionalholdingsandoperatinginthe
fastgrowingmarketsthatarelikelytogrowatamuchfasterpacethanthosewithlargermarketcap.Oncethecompanyisontheradarof
institutionsandfunds,themarketcapstartsgrowing.Hence,oneshouldbeonthelookoutforcompanieswithlowmarketcapandvery
highgrowthpotential.Astheysay,Catchthemyoung.
Afterinvestinginastock,oneshouldcloselymonitortheperformanceofthecompanyandregularlystudythequarterlyresultstocheckifit
isperformingonthedesignatedcourse.
Lastbutnottheleast,oneshouldhavetheconvictionandpatiencetoholdontoaninvestmenttillthetimeabusinessmaturesandthe
priceappreciationpotentialofthestockpetersdown.Thisishowthemultibaggerideasevolveovertime.
(ArunThukralisMD&CEOofAxisSecurities.ViewsexpressedinthisarticlearehisownanddonotrepresentthoseofETMarkets.com.
Pleaseconsultyourfinancialadviserbeforetakinganyinvestmentcallbasedonthecontentofthisarticle)
StayontopofbusinessnewswithTheEconomicTimesApp.DownloaditNow!
LiveMarket News Portfolio Mobile LiveTV Newsletter Commodities Speed QnA Blogs Alerts RSS
http://economictimes.indiatimes.com/markets/stocks/news/eightsimplecuesthatcantellyouifastockismultibaggerinthemaking/printarticle/57370 2/2