Saturday, November 8, 2014

FIVE WAYS TO IDENTIFY MULTI-BAGGER STOCKS .....

Courtesy :Economic Times

Multi-bagger, as the name suggests, is used for stocks which may create multiple bags (multiply money) over the next few years for an investor. This is the term mostly used to describe those stocks which have potential to report explosive growth over the period of time.
"Putting it differently, it is the process of identifying tomorrow's mid or large cap from today's small cap stock," said Kiran Kumar Kavikondala, Director & CEO, WealthRays Securities.

However, one should not go behind multi-baggers based on advice. Rather develop your own tools out of your analytical filters - and the multi-baggers will automatically come out of analysis.
"A 2-bagger is a stock that has doubled in price while a 10-bagger is one which has multiplied your investments 10 fold. So a 10-bagger is amazing since even if a 10-bagger happens over 10 years, it is a return of 26% p.a compounded over 10 years," said Dr. Vikas Gupta, Executive Vice President, Arthveda Fund Management Pvt Ltd.
"So multibaggers are always good to have. However, today everyone is chasing multi-baggers. These are companies which are growing their per share earnings by very large amounts every year," he added.
Gupta is of the view that these are typically what Buffett labels as companies with economic moats. People generally confuse these with companies having a well-known brand. While it is a good indicator, not all companies with a strong brand are necessarily potential multi-baggers, he added.
Here is a checklist of various tools or methodologies which one can adopt in choosing stocks which have the potential to become next multi-baggers:

Debt level is important while looking for a multi-bagger:

What you are chasing after in a multi-bagger is a company that can multiply its worth several times over the next few years. People usually label this is a growth stock. This is then identified with a company which is growing its earnings by large amounts every year.
"However, one should identify if the book value is growing at the same rate. If the EPS is growing at 30% p.a. then one should look at the debt and make sure that that is not growing at more than 30% p.a," said Dr. Vikas Gupta, Executive Vice President, Arthveda Fund Management Pvt Ltd.
"Only if the balance sheet is strong, i.e. debt is less than, say 30% of the equity, then one can say that it is a genuine multi-bagger," he said.

Check the quarterly performance (revenue/EBITDA):

Check the quarterly performance of revenue, EBITDA and net profit. Revenue and EBITDA are the two components which reflect clear picture of the company's operating performance in its segment.The operating performance of a company should reflect in its multiples; if the multiples are low and the company is outperforming at operating level, then the upside for the stock would be significant.

 Look for source of earnings of the company:

It would be better to look for the sources of earnings of the company. If you find that the potential to grow the business is huge in the segment where the company is operating, then it is better to take position now.
"In this case it would be irrelevant to look at the capitalization category (large cap, mid cap, small cap or micro-cap) rather look at the scalability of the operations," said Tushar Pendharkar, Equity Strategist, Right Horizons Financial Services.
"One should only look at the hidden value in the company. It could happen that the investment could take time to reflect profit; however, if the company is sound and you are confident that the business has potential then give time to your investments and be patient," he added.

Earnings per share (EPS) and price multiples:

Give a look at the Basic Earnings Per Share (Basic EPS) and price multiples. Prices of the stocks change on the quarterly performance of basic EPS reported by the company. Investors should calculate the Trailing Twelve Months (TTM) basic EPS and revenue to calculate current Price to EPS (P/E) and Price to Sales (P/S) respectively.
Pendharkar is of the view that these two price multiples provide valuation of a company in the market. If the company has started performing significantly well and its EPS is growing better than its stock price, then one could consider it a better chance for investments.

Look for cues of capex, structural change from Quarterly presentations:

Finally the investors should read and understand the quarterly presentations uploaded by the companies on their websites. Investors would get the recent announcements related to capital expenditure, structural changes in the company, other management decisions, etc.

49 comments :

  1. VP sir what is youe view on TEXMO PIPES RESULT

    ReplyDelete
  2. Sir very Good Morning . A very nice and informative article specially for new comers. This is a quality Blog.
    Sir one Question... What about shareholding Pattern ? If the shares are Pledge ? Or that does not effect the growth of a Company. Shall we overlook the Shareholding Pattern while investing ?

    ReplyDelete
    Replies
    1. It is difficult to generalise .If company pledged shares at lower rate and the outlook of company is good ,it is not a big issue and if it is vice -versa it may create problems. Another is reason and nature of pledge . Sometimes company promoters pledging shares to raise money for their personal spending which is not a good sign , but in some other cases shares pledge as a secondary collateral for money needed for company's own purpose .

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  3. Replies
    1. NBCC is currently trading around Rs.840 which I recommended earlier @ Rs.95 in following link

      http://value-picks.blogspot.in/2012/04/national-buildings-construction.html

      Neutral at CMP.

      Delete
  4. Replies
    1. Good company , enter in a correction

      Delete
  5. Hi...VP....skm egg must command high PE in 40.... Since its a monopoly in its industry and high entry barrier and untapped India.....the same case was with laopala which has commanded 50+ PE.....thanks for recommending skm egg....I did my research in it...so I find high PE it shud get.....even if it can do 10 EPs....50 PE ...means 500 possible according to my analysis....I was shocked to see that it has not scratched a surface in India....that gives me more comfort to buy the stock ....any suggestions vpji...is appreciated...

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  6. Respected VP Sir,
    I am a huge fan of yours and consider yourself as a Guide in Stock Market.

    Sir I found your diwali recommendation i.e SKM Egg Products as a great story which will unfold in the years to come.

    But sir given the craze for this stock we are not able to buy this as its locked in upper circuit for the last few days.
    Sir Now to price is close to 100 i.e 50% appreciated from your recommended level.Can we still buy it for great return in the years to come...Please please do reply

    Regards,
    Ranjit

    ReplyDelete
    Replies
    1. SKM traded below circuit rate on 30th and 31 st of October and even gone below previous days closing .If we have no courage to buy when it is available ,I am helpless.

      Study the company in details and decide at what price we are comfortable for a buy based on company's business prospects and our own risk profile and utilise opportunity when it is available if it is within our comfort zone.

      Delete
  7. VP Sir,

    I saw in one of your post that Gujarat Borosil is having trouble because of gas pricing issues in Gujarat.Does that mean we should stay away from it.
    I am asking this as i am holding it so wanted to know your view on this.Can we still hope that beinh a monoploy player it should deliver good returns given the kind of initiatives govt is taking.Also sir what bout the competition from china..Will it impact it in a big way or it can manage it

    ReplyDelete
    Replies
    1. This is an unexpected development .But I believe , since it is in Gujarat and government is keen to develop business , it will resolved in near future. Till then this may impact all companies from the affected region.

      Delete
  8. Sir
    Are you still tracking interlink petro . my uncle had made very good money in the stock when it got relisted and now he has stuck in the stock at higher levels . should he average the stock ??

    ReplyDelete
    Replies
    1. Already suggested to exit when there was a change in ownership of company

      Delete
  9. Hello sir. Need your help in rai saheb mills. Stock has doubled in 3 months but wanted to know future prospects. I just need ur opinion. Pls assist

    ReplyDelete
  10. Sir, whats ur view on texmo pipes?please advise .

    ReplyDelete
  11. Sir, please share your views on datamatics,mastek, strides ,vinyl chem if any... thank you

    ReplyDelete
    Replies
    1. Not tracking the above mentioned companies

      Delete
  12. Thanks vp sir .Very good article for new comers like me......

    ReplyDelete
  13. Hello sir, I feel realty sector will do well in future pls let us know company in this sector ??

    ReplyDelete
    Replies
    1. Not tracking much cos from this sector

      Delete
  14. Sir plz give update on capital first results.I am holding capf from 221 levels. plz suggest .........

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  15. sir ur views on talbros auto result please

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  16. Dear god what's your opinion on garware wall ropes?

    ReplyDelete
  17. Dear Sir,

    Tracking Indraprashta Medical Corp? If yes, then do u c growth?

    ReplyDelete
  18. Sir whr can I find your latest recommend stocks. Also wanted to know abt rai saheb mills, jindal cotex, grauer & weil. Hav made some investments in these. Want to know future prospects. Pls assist

    ReplyDelete
  19. Dear VP, Do u track healthcare sector. Whats your view on Fortis Healthcare since they are reducing their debt dramatically, improvement in their revenues. Whats your take on it as a multibagger.?

    ReplyDelete
    Replies
    1. Let us hope they will succeed in this effort without compromising the operations of core business.

      Delete
  20. Sir,

    What is your view on Huhtamaki PPL(One of your old recommendation) after its result QE 30-09-14. Can I hold it..........

    Amit

    ReplyDelete
    Replies
    1. Long term passive investor's can hold

      Delete
  21. dear sir why there is a price difference of about 10 percent between mahindra cie and mahindra ugine for a long time in spite of near completion of merging process. Please give your comments. Thanks and regards. Ramana

    ReplyDelete
  22. Sir,

    Please share your views on Rubfila intl

    ReplyDelete
  23. Hello Sir...Trying again!! your views on symphony at current levels.

    ReplyDelete
  24. Sir pls share your views on kanoria chemicals. Thx , Jay

    ReplyDelete
  25. Dear VP sir, pls provide your thoughts on haldyn and freshtrop.. Thank you sir

    ReplyDelete
  26. sir, please share your views on IPCA Lab on long term basis?

    ReplyDelete
  27. Sir , thanks for such a nice article giving us insight. You are teaching to spread out our wing to fly.

    Kindly shed light how identify the right price at current market price to buy.

    Thanks in advance.

    ReplyDelete
  28. This comment has been removed by the author.

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  29. Is Zicom a good buy at 134?
    Regards.

    ReplyDelete

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