Hunting for a multibagger? Here's a handy check-list
1/8
Live your dream
Being able to spot a potential multibagger stock early is the ultimate dream of any investor. Such stocks exist all the time, no matter whether the market is rising or falling. But it needs a lot of time and patience to be able to spot them.
Here are a few parameters that can help you spot a potential multibagger stock early.
Here are a few parameters that can help you spot a potential multibagger stock early.
2/8
Is the company a market leader?
This is the first and foremost condition a stock should fulfil. The company should be market leader in whatever it is doing, even if on a small scale, and it should be able to do business on a large scale over time. The company’s focus should be on increasing revenue and growing market share.
3/8
Check the business opportunity; is it scalable?
Any company with tremendous business opportunity in a segment can give super returns in long run. Scalability and sustainability of the business hold the key to exponential growth.
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4/8
Never mind debt, provided it's reasonable
Debt can make or mar fortunes. The company should have reasonable debt -- both at its inception and growth stages. Any company that has low to no debt stands a solid chance of becoming a multibagger.
5/8
Quality of promoter a game changer
In a crowd, how does one stand out? Like always, ethics matters. Hunt for companies with ethical management. Where do the clues lie? The best way to find that out is to check the management’s decisions and performance when chips are down.
6/8
Dig in for more: RoE, RoCE
You can rest assured about the success rate of a stock if it has high return on equity and can generate good returns on the capital employed. RoE is short for Return on Equity and RoCE Return on Capital Employed.
7/8
Not finished yet: Low PE ratio
That one factor that comes to your mind just before buying is valuation -- in short, PE ratio. Company available at a lower price to earnings (low PE) have an edge. Not just that, more consistent earnings make them a more suitable candidate to be a sureshot winner.
8/8
All guns blazing...
Don't look too far to spot talent. Numbers don't lie. Revenue and Ebitda can give you a fair picture of a company's mettle. What's more, the operating performance is a pointer to its valuations. If the valuation multiples are low and the company is scoring high on earnings, you are in for a heady ride.