- Date : 01/11/2022
- Read: 9 mins
We often hear how legendary investors like Warren Buffet and Rakesh Jhunjhunwala have created wealth with multibagger stocks. Here’s how you can identify multibaggers and do the same.
Many investors are delighted when their stocks or mutual funds give 25%-50% returns in a year. However, legendary investors like Warren Buffet and Rakesh Jhunjhunwala don't settle for such returns. For Warren Buffet, the investment time horizon for most stocks is a lifetime. He is known to enjoy regular dividends from his investments. As a result, over time, many of his stock investments multiple by 25 times, 50 times, or even higher.
In this article, we will understand what multibagger stocks are and how you can identify them.
Meaning of multibagger stocks
When a stock gives more than 100% return or multiplies your money, it is known as a multibagger. For example, assume that you bought a stock for Rs 100. The company continues to deliver good growth in sales, margins, and profits. As a result, over a period of time, the stock price reaches Rs 200. At this stage, the company has delivered more than 100% return and will be called a multibagger.
Multibagger stocks can also be classified based on the number of times their share price multiplies. For example, in the above example, when the share price reaches Rs 200, it will be called a two-bagger. Similarly, when the share price reaches Rs 500, it will be called a five-bagger, and when the share price reaches Rs 1,000, it will be called a ten-bagger.
Investors like Warren Buffet have many multibagger stocks in their investment portfolio due to their long-term investment strategies. These include Coca-Cola, American Express, BYD, Wells Fargo, etc. Rakesh Jhunjhunwala also had multibagger stocks like Titan and CRISIL in his investment portfolio. He first bought Titan shares at Rs 40 per share in 2003. As of 14 October 2022, the stock price is trading at Rs 2640. It has thus managed to be a 66-bagger.
Chart: Titan share price performance
(Source: Google)
The above chart shows how Titan has been a big wealth creator for its long-term shareholders in the last 20 years.
Also Read: 5 Penny Stocks That Became Multibagger In 2021
How to identify multibagger stocks?
Now that we understand multibagger stocks, let us understand the process of identifying them. You may consider the following factors while identifying multibagger stocks.
1. Growing market and market share - You should look for companies in sectors with a long runway for growth. For example, India is a credit-starved country. The credit market has been growing continuously for the last few decades and this is expected to continue for a long time. Finance companies can continue growing their market share as the market itself is growing. At the same time, finance companies with good management can grab market share from existing companies.
For example, HDFC Bank has been one of the best growth stories in the Indian banking industry. As the overall market has been growing, HDFC Bank has been growing its market share by acquiring new customers. At the same time, it has also been getting market share from public sector banks and private banks.
Even after growing at around 20% CAGR for the past two decades, HDFC Bank still has less than 10% market share in India. So, even after attaining such a huge balance sheet size, it still has a lot of runway for high growth for many more years.
Chart: HDFC Bank share price performance
(Source: https://www.valueresearchonline.com/stocks/42383/hdfc-bank-ltd/)
The above chart shows how HDFC Bank has been one of the best wealth creators in the last 20 years. Twenty years ago, the HDFC Bank share was trading at Rs 20. As on 14 October 2022, the stock is trading at Rs 1439. It has been a 72-bagger in the last 20 years.
Key takeaway: Identify companies in a growing market where there is scope to gain new customers as well as existing customers from competing companies
2) Remember that smaller companies can grow faster - You should identify companies for multibagger returns when they are either small-caps or micro-caps. Usually, smaller companies have the potential to grow at a faster pace than medium and large companies. Once a company reaches a sizeable market capitalisation, the growth tends to slow down compared to previous years.
For example, in February 2007, Page Industries (the owners of the Jockey brand) came out with an IPO. It raised Rs 100 crore at an IPO pricing of Rs 360-395 per share. At the time of the IPO, it was a small-cap company. Since then, the company has done well and has grown its sales and profits at a healthy rate. Today, the company's share price is a whopping Rs 50,754.
Chart: Page Industries share price performance
(Source: https://www.valueresearchonline.com/stocks/43691/page-industries-ltd#overview)
The above chart shows the wealth creation journey of Page Industries since its IPO. The company has been a 128-bagger since its IPO.
Key takeaway: Identify companies at an early stage for multibagger returns.
Also Read: Looking For Multibagger Stocks? Check Out The Top 9 With Triple-Digit Returns Since Dussehra 2021
3) Identify companies with consistent growth in earnings and P/E expansion - While searching for multibagger stocks, you should identify companies that can grow their earnings consistently. If the company can do that, the stock market will start rewarding it with a higher price-to-earning (P/E) multiple.
With consistent earnings growth and P/E expansion, the stock price can grow exponentially. For example, Bajaj Finance Limited has demonstrated consistent earnings per share (EPS) growth over the years. Naturally, its P/E has also expanded over time. As a result, Bajaj Finance has been one of the best multibagger stocks in the last 20 years.
Chart: Bajaj Finance growth in EPS and PE
(Source: https://www.screener.in/company/BAJFINANCE/consolidated/)
The above chart shows Bajaj Finance EPS in July 2015 was Rs 17.91, which has grown to Rs 142 in July 2022. At the same time, the PE has expanded from 28 in July 2015 to 53 in July 2022.
Chart: Bajaj Finance Limited share price performance
(Source: https://www.valueresearchonline.com/stocks/41247/bajaj-finance-ltd)
The above chart shows how Bajaj Finance Limited has been one of the best multibagger shares in the last two decades. In October 2002, the share price was trading at Rs 4. As of 14 October 2022, the share is trading at Rs 7272, making it an eye-popping 1818-bagger!
Key takeaway: Analyse whether the company can grow its earnings consistently over a long period.
4) How to choose a stock for multibagger returns: Other factors
Some other factors that you can consider for identifying multibagger stocks include:
-
Capital efficiency: Companies that allocate capital efficiently are usually rewarded with high share prices. For example, IT companies such as Infosys, TCS, HCL Technologies, etc., generate huge free cash flows and are debt-free. They have returned a huge amount of cash to shareholders through dividends and share buybacks. Hence, these companies have been huge multibaggers.
-
Niche segment: Companies operating in a niche segment tend to do well. For example, Eicher Motors, the owner of Royal Enfield, was the first company to offer high-powered premium bikes in the Indian market on a large scale. Despite some competition from domestic and foreign companies, the company has the largest market share even today. As a result, it has given huge multibagger returns to its shareholders.
-
Self-sufficiency: India is a huge importer of many goods. In the last few years, the government has been promoting the ‘Make in India’ campaign. As part of this, the government has taken a lot of initiatives such as tax incentives, production-linked incentives (PLIs), etc. Companies such as Dixon Technologies, Amber Enterprises, etc., that are into domestic manufacturing have given good multibagger returns. Look for companies that are working on making India self-sufficient in various products.
-
China+1 theme: Since the COVID-19 pandemic, the China lockdowns have disrupted global supply chains. Even after more than two years of the pandemic, China has a zero-COVID tolerance policy, resulting in lockdowns being imposed from time to time. To counter this, many countries and companies are working on a China+1 theme, looking for reliable partners that can supply goods and services as a backup for China. India is a big beneficiary of this theme. For example, Indian chemical companies have huge order inflows due to the China+1 theme. Many of these companies have given huge multibagger returns. So, look for companies that can benefit from the China+1 theme.
Also Read: Multibagger SME IPOs Of 2022 With Returns Of Up To 8 Times - Did You Invest In These Multibagger IPOs?
Multibagger stocks for 2022
Now that we have understood the process of identifying multibagger stocks, let us look at some of the stocks that turned multibaggers in 2022. It was a tough year for global equity markets, including India. The Ukraine-Russia war, supply chain disruptions, China’s COVID lockdowns, high inflation, high interest rates, strong US dollar index, etc., have all played a part in dragging down the stock markets.
However, 2022 still managed to produce some multibagger stocks despite all the above challenges. Here is a list:
Table: Multibagger stocks in the last one year
(Source: https://www.tickertape.in/screener/equity)
Note: The above data is as of 15 October 2022. The companies have been filtered from the Nifty 500 companies.
Multibagger stocks: Your key to wealth creation
In this article, we explored the concept of multibagger stocks and listed the factors to consider while identifying them. Once you identify multibagger stocks, you should stay invested for the long term. The longer you stay invested, the better the returns. Your aim should be to emulate legends like Warren Buffet and Rakesh Jhunjhunwala and multiply your investment by 50-100 times. In this quest, multibagger stocks can be your key to wealth creation.
Disclaimer: This article is intended for general information purposes only and should not be construed as investment or legal advice. You should separately obtain independent advice when making decisions in these areas.
Many investors are delighted when their stocks or mutual funds give 25%-50% returns in a year. However, legendary investors like Warren Buffet and Rakesh Jhunjhunwala don't settle for such returns. For Warren Buffet, the investment time horizon for most stocks is a lifetime. He is known to enjoy regular dividends from his investments. As a result, over time, many of his stock investments multiple by 25 times, 50 times, or even higher.
In this article, we will understand what multibagger stocks are and how you can identify them.
Meaning of multibagger stocks
When a stock gives more than 100% return or multiplies your money, it is known as a multibagger. For example, assume that you bought a stock for Rs 100. The company continues to deliver good growth in sales, margins, and profits. As a result, over a period of time, the stock price reaches Rs 200. At this stage, the company has delivered more than 100% return and will be called a multibagger.
Multibagger stocks can also be classified based on the number of times their share price multiplies. For example, in the above example, when the share price reaches Rs 200, it will be called a two-bagger. Similarly, when the share price reaches Rs 500, it will be called a five-bagger, and when the share price reaches Rs 1,000, it will be called a ten-bagger.
Investors like Warren Buffet have many multibagger stocks in their investment portfolio due to their long-term investment strategies. These include Coca-Cola, American Express, BYD, Wells Fargo, etc. Rakesh Jhunjhunwala also had multibagger stocks like Titan and CRISIL in his investment portfolio. He first bought Titan shares at Rs 40 per share in 2003. As of 14 October 2022, the stock price is trading at Rs 2640. It has thus managed to be a 66-bagger.
Chart: Titan share price performance
(Source: Google)
The above chart shows how Titan has been a big wealth creator for its long-term shareholders in the last 20 years.
Also Read: 5 Penny Stocks That Became Multibagger In 2021
How to identify multibagger stocks?
Now that we understand multibagger stocks, let us understand the process of identifying them. You may consider the following factors while identifying multibagger stocks.
1. Growing market and market share - You should look for companies in sectors with a long runway for growth. For example, India is a credit-starved country. The credit market has been growing continuously for the last few decades and this is expected to continue for a long time. Finance companies can continue growing their market share as the market itself is growing. At the same time, finance companies with good management can grab market share from existing companies.
For example, HDFC Bank has been one of the best growth stories in the Indian banking industry. As the overall market has been growing, HDFC Bank has been growing its market share by acquiring new customers. At the same time, it has also been getting market share from public sector banks and private banks.
Even after growing at around 20% CAGR for the past two decades, HDFC Bank still has less than 10% market share in India. So, even after attaining such a huge balance sheet size, it still has a lot of runway for high growth for many more years.
Chart: HDFC Bank share price performance
(Source: https://www.valueresearchonline.com/stocks/42383/hdfc-bank-ltd/)
The above chart shows how HDFC Bank has been one of the best wealth creators in the last 20 years. Twenty years ago, the HDFC Bank share was trading at Rs 20. As on 14 October 2022, the stock is trading at Rs 1439. It has been a 72-bagger in the last 20 years.
Key takeaway: Identify companies in a growing market where there is scope to gain new customers as well as existing customers from competing companies
2) Remember that smaller companies can grow faster - You should identify companies for multibagger returns when they are either small-caps or micro-caps. Usually, smaller companies have the potential to grow at a faster pace than medium and large companies. Once a company reaches a sizeable market capitalisation, the growth tends to slow down compared to previous years.
For example, in February 2007, Page Industries (the owners of the Jockey brand) came out with an IPO. It raised Rs 100 crore at an IPO pricing of Rs 360-395 per share. At the time of the IPO, it was a small-cap company. Since then, the company has done well and has grown its sales and profits at a healthy rate. Today, the company's share price is a whopping Rs 50,754.
Chart: Page Industries share price performance
(Source: https://www.valueresearchonline.com/stocks/43691/page-industries-ltd#overview)
The above chart shows the wealth creation journey of Page Industries since its IPO. The company has been a 128-bagger since its IPO.
Key takeaway: Identify companies at an early stage for multibagger returns.
Also Read: Looking For Multibagger Stocks? Check Out The Top 9 With Triple-Digit Returns Since Dussehra 2021
3) Identify companies with consistent growth in earnings and P/E expansion - While searching for multibagger stocks, you should identify companies that can grow their earnings consistently. If the company can do that, the stock market will start rewarding it with a higher price-to-earning (P/E) multiple.
With consistent earnings growth and P/E expansion, the stock price can grow exponentially. For example, Bajaj Finance Limited has demonstrated consistent earnings per share (EPS) growth over the years. Naturally, its P/E has also expanded over time. As a result, Bajaj Finance has been one of the best multibagger stocks in the last 20 years.
Chart: Bajaj Finance growth in EPS and PE
(Source: https://www.screener.in/company/BAJFINANCE/consolidated/)
The above chart shows Bajaj Finance EPS in July 2015 was Rs 17.91, which has grown to Rs 142 in July 2022. At the same time, the PE has expanded from 28 in July 2015 to 53 in July 2022.
Chart: Bajaj Finance Limited share price performance
(Source: https://www.valueresearchonline.com/stocks/41247/bajaj-finance-ltd)
The above chart shows how Bajaj Finance Limited has been one of the best multibagger shares in the last two decades. In October 2002, the share price was trading at Rs 4. As of 14 October 2022, the share is trading at Rs 7272, making it an eye-popping 1818-bagger!
Key takeaway: Analyse whether the company can grow its earnings consistently over a long period.
4) How to choose a stock for multibagger returns: Other factors
Some other factors that you can consider for identifying multibagger stocks include:
-
Capital efficiency: Companies that allocate capital efficiently are usually rewarded with high share prices. For example, IT companies such as Infosys, TCS, HCL Technologies, etc., generate huge free cash flows and are debt-free. They have returned a huge amount of cash to shareholders through dividends and share buybacks. Hence, these companies have been huge multibaggers.
-
Niche segment: Companies operating in a niche segment tend to do well. For example, Eicher Motors, the owner of Royal Enfield, was the first company to offer high-powered premium bikes in the Indian market on a large scale. Despite some competition from domestic and foreign companies, the company has the largest market share even today. As a result, it has given huge multibagger returns to its shareholders.
-
Self-sufficiency: India is a huge importer of many goods. In the last few years, the government has been promoting the ‘Make in India’ campaign. As part of this, the government has taken a lot of initiatives such as tax incentives, production-linked incentives (PLIs), etc. Companies such as Dixon Technologies, Amber Enterprises, etc., that are into domestic manufacturing have given good multibagger returns. Look for companies that are working on making India self-sufficient in various products.
-
China+1 theme: Since the COVID-19 pandemic, the China lockdowns have disrupted global supply chains. Even after more than two years of the pandemic, China has a zero-COVID tolerance policy, resulting in lockdowns being imposed from time to time. To counter this, many countries and companies are working on a China+1 theme, looking for reliable partners that can supply goods and services as a backup for China. India is a big beneficiary of this theme. For example, Indian chemical companies have huge order inflows due to the China+1 theme. Many of these companies have given huge multibagger returns. So, look for companies that can benefit from the China+1 theme.
Also Read: Multibagger SME IPOs Of 2022 With Returns Of Up To 8 Times - Did You Invest In These Multibagger IPOs?
Multibagger stocks for 2022
Now that we have understood the process of identifying multibagger stocks, let us look at some of the stocks that turned multibaggers in 2022. It was a tough year for global equity markets, including India. The Ukraine-Russia war, supply chain disruptions, China’s COVID lockdowns, high inflation, high interest rates, strong US dollar index, etc., have all played a part in dragging down the stock markets.
However, 2022 still managed to produce some multibagger stocks despite all the above challenges. Here is a list:
Table: Multibagger stocks in the last one year
(Source: https://www.tickertape.in/screener/equity)
Note: The above data is as of 15 October 2022. The companies have been filtered from the Nifty 500 companies.
Multibagger stocks: Your key to wealth creation
In this article, we explored the concept of multibagger stocks and listed the factors to consider while identifying them. Once you identify multibagger stocks, you should stay invested for the long term. The longer you stay invested, the better the returns. Your aim should be to emulate legends like Warren Buffet and Rakesh Jhunjhunwala and multiply your investment by 50-100 times. In this quest, multibagger stocks can be your key to wealth creation.
Disclaimer: This article is intended for general information purposes only and should not be construed as investment or legal advice. You should separately obtain independent advice when making decisions in these areas.
