How to Find Multibagger Stocks? 5 Learnings from previous Multibaggers!

Earning even one rupee from stock market is not that easy as it may look. Some try their best to earn from market, but they don’t get success. Some do less hard work, and even earn so much that they become rich by investing. Why?

Doing hard work is appreciated in stock market. But it is important for you to decide that for which stock you are doing this work and analysis.

For short term opportunities, you need to use some specific filters. And for long term, you need some different filters.

In this article, we are going to discuss about how can we identify multibagger shares using lessons from previous multibagger stocks and what are the Qualitative characteristics of a multibagger stock.

TOPICS

• What are multibagger stocks?

• Analysis of 3 multibagger stocks!

• What common does these three multibagger stocks had?

• Top 5 lessons we can learn from previous multibagger stocks!

• Conclusion

But before discussing about these filters. We will do some study.

What are multibagger stocks?

If you know about long term investment, you might have heard about the word “multibagger“.

If you don’t know what is the meaning of this word, here is a simple explanation from Wikipedia.

In other words, Multibagger are those stocks which gives you multi fold returns in long term.

In Indian stock market, you will find number of stocks which have delivered multibagger returns in long term.

You can easily find them when they have already become Multibagger. Simply find those stocks which have delivered more than 100 percent returns. And cheers, you found them!

You can also check this list on Economic times if you want to see multibagger stocks of last one decade.

But this is not going to benefit you!

The real task is to find Future Multibaggers stocks. Even if you found them using some financial filters, there is no gurantee that they will definitely become multibagger! Remember it!

However if we study about some previous multibagger stocks, then we can extract some important learnings from them which may help us to find a Potential Multibagger Stock having potential to turn into a multibagger in future.

Using these learnings can really improve our chances of picking a future multibagger stock!

Interested to know about these learnings?

Let’s see them.

How to Find MULTIBAGGER Stocks in Indian Stock Market?

We will briefly study about some popular Multibagger Stocks and try to find what kind of Qualities they had which helped them to become Multibaggers.

In our list of popular Multibagger stocks, first name is of Bajaj Finance.

Bajaj finance, the leader in NBFCs

Photo by Dhiraj Singh/Bloomberg via Getty Images

You have probably heard about the bajaj finance stock if you are an active trader and investor in Indian stock market.

Bajaj finance is that record breaking stock which delivered more than 80,000% return in just 11 years!

Not amazed?

You will find it amazing if I tell you how much money you could have earned if you had invested in this stock in 2009.

Source: Google Finance

In Feb 2009, stock had made a low of around Rs 6. Suppose, we made an investment of Rs 10,000 at that price means we bought 1,666 shares (10,000/6=1,666).

Today ( April 2020), stock price is trading around Rs 2200. But in Feb 2020, stock had made an all time high of around Rs 4800.

By doing rough calculations and taking Rs 4800 as high, we can easily find that stock has climbed almost 800 times from Rs 6 level.

This means, our investment would have become almost Rs 80,00,000 rupees from just 10,000 rupees. This is a huge return!

Now, let’s see what Qualities of Bajaj Finance’s business led them to become one of the Top Multibagger Stocks.

What made Bajaj Finance a Multibagger Stock in Long term?

• After financial crisis in 2007-2008, no one was interested to invest in consumer segment. Many loans of consumer segment had turned into bad loans. But bajaj finance decided to invest more in consumer segment as they were seeing a great opportunity there. They were expecting that in future, they would be able to do a big business in consumer/retail segment. So, company’s management identified a kind of business opportunity and took a decision to invest their funds and time more there.
• A customer wants easy to handle products. So, they keep improving their different loan products using technology and management expertise. This helped them to attract large number of customers.
• In last few years, loans given to corporates have seen a sharp jump in bad loans. Whereas loans given in retail segment hardly saw any pressure. This triggered most of the lenders which had major focus on retail lending, to gain better valuations in stock market at the cost of corporate lenders (those which had mostly advanced money to corporates).
• As a part of famous Bajaj Group and by using Bajaj name, it really helped the company to build a goodwill in the minds of consumers faster.
• And finally, under leadership of Sanjiv Bajaj (VC) and Rajiv jain (MD), many decisions of company’s management proved beneficial for the company.

So, these were the qualities of Bajaj Finance. Now, let’s move to a new multibagger stock.

In our list, the next name of Popular Multibagger Stock is Relaxo Footwear.

Relaxo Footwear, a popular brand for footwear buyers!

Source: Google Finance

If you had invested your money in Relaxo footwear shares in 2011 and held the shares till 2020, then you could have earned an amazing return of 6,492% return in just 8 years and 2 months!

To find how much wealth you could have generated, let’s do some calculation.

Suppose, you invested Rs 10,000 in Relaxo footwear stock in December 2011 at the price of Rs 12. If you had waited patiently for almost 8 years, then your investment of Rs 10,000 in stock could turn into Rs 6,49,200! (10,000*6,492 /100)

As compare to Bajaj finance, this return may seem lower. But we shouldn’t forget that it delivered this return in just 8 years!

Without any doubt, Relaxo Footwear is a Great Multibagger Stock which made you rich by investing in footwear! 

So, What made the Relaxo footwear a Multibagger Stock?

• While all other footwear companies were focusing in leather products in 2007-2010, Relaxo footwear found an opportunity in Rubber made footwear products. As compare to leather which was expensive, rubber was cheap and still comfortable. Company primarily focused on rubber made and other low cost raw material made footwears to bring down its footwear price. This helped company a lot in capturing market share. Means, like Bajaj finance, Relaxo footwear also found a great business opportunity in their sector and invested a lot in that potential segment to get benefit in future.
• As Relaxo Footwear’s brand name was not popular in the footwear industry, therefore they spent a lot in advertisements to build a goodwill among customers. Right advertising strategies really helped them a lot and today, relaxo footwear is quite popular.
• For every category of people, relaxo has a special and stylish product Brand. Like for athletes, there is sparx. For stylish footwears, they have bahamas brand. And they also have flite brand footwears for others.
• Management of company had a clear vision in initial stages! They clearly knew where they have to take their company in future.

So after Relaxo, now we are going to look at the last company for our study. Name of that company is Eicher Motors.

Eicher Motors, the Brand of Vintage Bikes!

India Auto Expo 2012 (Graham Crouch/Bloomberg via Getty Images)

Today, whether they are shareholders or customers, both loves Eicher motors a lot.

Their customers loves their products as they offer them superior quality and a feeling of classical bikes.

Their shareholders also loves them as they have earned a lot by investing in their shares.

In 2009, share price of Eicher company was trading around just Rs 200 levels. But when Eicher motors started grabbing the market share, its share price never seen that lower level again.

On the back of continues Sales Growth and community of Bullet lovers that was build by company, stock price traded around Rs 31,000 levels in 2017! After that, stock has been in some consolidation phase.

Those who invested in Eicher Motors shares in 2009 were able to earn almost 15,000% returns.

Source: Google Finance

In other words, if you had invested around Rs 50,000 (cost of bike) in their shares in 2009, your investment could turned into Rs 75,00,000 by 2017!

So, what made the Eicher Motors a Multibagger stock?

• The main reason: “When you start their bikes, you feel sort of powerful. The sound it makes and the way it starts and runs, it makes you feel like you are riding a powerful machine which might create a sound that makes you feel its creating noise but the sheer joy ride and smoothness with which it moves makes you feel very satisfied” (Experience of a Quora user). Like this one, many other customers have similar opinions on Royal Enfield bikes. The satisfaction level it gave to its customers made Eicher motors a successful company.
• Company organised number of campaigns and shows to promote their bikes. The way their showrooms were made and styled and the product range they offer you beside of Bikes, they were able to made a community of Bullet lovers.
• Management done a brilliant job under leadership of Siddhartha Lal. Lal is credited with the turnaround and revival of the “Royal Enfield Bullet” motorcycle (manufactured by Royal Enfield).
• As company had its own community of bullet lovers and almost all customers have a great opinion on company’s products, this helped the company in achieving better sales growth over several years. Because of this, share price also continued to remain in momentum.

So, this was the brief analysis of Popular three Multibagger companies.

As we have already taken a brief look on how these three shares performed in last one decade and what were the reasons behind their success, we will now look at two more common reasons which helped all these three stocks to become Future Multibagger stocks.

Those two reasons are

1) Those companies having B2C (Business to consumer) business generally gets Good Valuations in stock market.

What is B2C business?

“The term business-to-consumer (B2C) refers to the process of selling products and services directly to the consumers who are the end-users of its products or services. Most companies that sell directly to consumers can be referred to as B2C companies”

Higher margins, better brand name recognition among public and other few benefits have always led good valuations in B2C companies. This was a common reason in all discussed companies.

All of them are dealing with that end-users who are going to consume their products and no further person will consume them.

2) The second reason was their small size of business. One decade ago, all of them were smallcap and microcap stocks and had very small market share.

When all of these companies were very small in size, they had very less things to lose. Whereas, by doing hard work and using best business practices, they could achive a lot, which they achieved also.

A company in electronics business (or in other Industry which is quite big in size) having market share of just 5 percent can comfortably double or triple their marker share, if they use best marketing practices and manufacture satisfying products.

However, a company having 60-80 percent market share can’t even double their market share as they can’t cross 100 percent! But if the whole industry size is expected to multifold in near future, then that company having the leadership position in Industry would also have good chances of becoming Multibagger Stock.

Overall, it is not a best thing to select only those companies which are very small in size and have low market share. But it will be a great thing if you pick your companies (as your multibagger bet) which are small in size.

Till now, we have discussed on what does a Multibagger stock means, what are some Popular multibagger stocks in India and why they turned multibagger stocks in future.

Now, we will conclude our discussion and made a list of Qualitative characteristics that previous multibagger stocks had.

Let’s do it.

Top 5 Learning from previous Multibagger Stocks are

1. Product of the company should satisfy their customers. Companies making low quality products which are unable to satisfy their customers are unlikely to give multibagger returns in long term unless they don’t improve their Product Quality. As we saw above, Bajaj finance provided top Quality finance services to their customers. Relaxo made cheap and quality footwear for its consumers. And Eicher motors are making quality bikes (having vintage body design and thumping exhaust) which are satisfying their customers a lot. This is a need for any company to gain momentum in future.
2. Management should be as good as you are! A Good management is an important element of any Multibagger stock. If the management is not good, they wouldn’t be able to grab existing business opportunities and might also reduce company’s current sales and profits. Now, it is upto you how you judge whether the management of a company is good or not. Some tips for to judge: See whether the company is achieving what management had said earlier or not? or what is the progress on that. Management should have some vision of how they want their company to look in future and whether they are taking some steps in this direction or not.
3. It is an Ideal situation if the company is small in size! Company will have nothing much to lose and therefore could more focus on how they can get Bigger in future. They can focus on better Growth opportunities and can grow at an amazing rate.
4. Operating in retail segment can help company to achieve better profits. History suggests that companies operating in retail segment have got better valuations in stock market! It could be due to better margins in retail segment, better recognition in public etc. So, if the company is operating in retail segment, it will be a good thing for you.
5. Company’s existing businesses and upcoming businesses should have a Bright future! Here, you will have to look at in which area, the company is investing/focusing more and whether the future of that area/Industry/sector is good or not. You can do this by performing a brief analysis of that sector/Industry. Additionally, you will have to look at in which sector, the company is going to invest in upcoming years and what they will do in that sector. And like above, here also, you will have to perform some brief analysis to find out whether the company is moving in good direction and is expected to be moving in good direction and whether moving in this direction will return back something to the company or not? You will have to do this till you hold the shares of the company.

That’s all you can look at while finding the potential Multibagger stocks in India.

Beside of doing above things, I want to tell you an important strategy here, which can help you in long term investment.

It can really benefit us a lot in investing for long term. But many fails in doing this.

Sometimes, when you have bought a share at Rs 100 and it becomes Rs 200, most of the investors who invested with the aim of remain invested for long term take exit after such rise in shares. This is natural because we want to secure our profits.

But if you really want to remain invested in stock and also want to secure some profit, try this simple trick.

Instead of taking complete exit, Sell your 50% shares when you want to book your profit. And do nothing with remaining 50% shares.

By doing this, you will be able to book some profit in stock and recover all your invested money (if you book your profit when stock has doubled). Using this trick, you will be able to hold Good stocks for long term.

Conclusion

While analysing a company to know whether it can become a potential multibagger stock or not, it is important to look at both Qualitative and Quantitative factors. In this article, we discussed about what are some qualitative characteristics of a mulitbagger stock, with the help of lessons from previous Multibagger stocks.

It is important to note that even if a company seems a potential multibagger stock at the time when you invest in it, it doesn’t gurantee whether stock price of the company will rise in future or not!

Some other important factors are also there (which affects company) on which, neither company nor you have control and you can’t analyse them! But yes, analysing a company before investing in it for long term can really increase your chances of success.

Now, I should end this article as you have already got to know how can we identify multibagger shares using lessons from previous Multibagger stocks and which Qualitative factors are important to consider before investing for long term and picking right multibagger stocks.

In case of any query regarding this topic, you can ask it through comment box.

Good luck : )