Points to note over here and Possible Scenarios:
There is an illustrious list of investors who have gained fortunes from multibagger stocks making these stocks one of the most sought-after investment options. However, it is important to understand what a multibagger is and the basics of investing in these stocks. In simple words, multibagger stocks can be defined as stocks that can produce big profits and can get back manifold returns in a couple of years.
Though these stocks are desirable and worth aiming for, investing in Multibagger Stocks requires a deep understanding of the market trends. Multibaggers are the ultimate investment option for you, if you are looking for a low-risk venture that would give you return in a year or two and if you want to keep your distance from market volatility. Here is a step-by-step method that will help you in finding the best multibagger stocks and help you gain a better perspective.
The price to earnings ratio of a stock is seldom useful. Nonetheless, when the P-E ratio of the company is equated with that of the industry, a clear picture of the growth potential of the stock can be obtained. This ratio tells you how many years it will take for your investment to return capital invested at constant earnings. Ideally, the P-E ratio of a stock should be lower than the industry P-E. A low P-E value is usually a good signal unless the business is growing at a rapid pace.
The profitability of a tool is an active indicator of the potential of the stock. The Earnings per Share (EPS) and Profitability after Taxes (PAT) should be growing on a yearly basis. Another tool, Operation Profits indicates that the demand for the company’s product is growing and this demand boosts in the growth of the company as well.
The prospect of a company is a sure indication of its future potential. If a company belongs to an industry that has promising prospects, choosing the company would be a wise option. However, keeping a tab on the government policies is important in this case. Some examples include Vardhman Textiles and KPR Mills that are possible beneficiaries of the Modi government’s emphasis on the textile industry to create more employability.
Understanding these steps can help you while investing in Multibagger Stocks. If these three aspects stand positive for a stock, it is highly prospective of it to be a multibagger and buying such a stock would be a wise decision. However, following marketing practices carefully and understanding how stocks are actually placed in the stock trade market is necessary for successful investments.