Coined by the world-famous investor Peter Lynch, the term ‘multi bagger’ has become a common trading concept in recent times. Multibagger stocks are those that give more than 100% returns on investments. These stocks belong to small and mid-cap companies that are in their growing stages and have the potential to provide exponential returns over time. Take the instance of Bata India, whose share price was Rs.83.39 in January 1999. As of 31st March 2021, the stock price stands at Rs.1489.90. A return of more than 1600%!
Multibagger stocks are issued by firms having enormous growth potential, demonstrating sound management and production techniques. It conjointly exhibits terrific analysis and development skills of a company, permitting this product to get high demand within the market.
These stocks are not selected based on the type of company or its valuation; These stocks are often undervalued and growing in high-growth industries and emerging markets like India.
Benefits of multibagger stocks:
So, yes, given the return potential of multibagger stocks, they are definitely worth the investment. Multibagger stocks, primarily, have the following benefits –
- Their stock price is low since they belong to small or mid-cap companies. As such, you can invest an affordable amount and own a sizable amount of shares.
- When it comes to returns, the sky is the limit. Depending on the company fundamentals, the stock can give you considerable returns if you hold it over a long-term horizon.
You can, thus, invest in multibagger stocks if you have a long-term investment horizon and get the benefit of the return potential that they have. However, picking the right multibagger stocks is the dealbreaker. If you can spot a potential multibagger, the returns are yours for the taking. But, if you do not, you might suffer losses. So, when picking multibagger stocks, look for companies that –
- Have a high growth potential
- Have been consistently generating profits
- Are relevant in the changing market dynamics
- Have experienced management
Such companies can generate long-term returns and turn multi-baggers.
The greatest virtue of a multibagger investor is patience due to the ample amount of time these stocks take to show value. Companies with significant competitive advantages in a growing market can increase the growth of their stocks.
So, investing in multi-baggers is a good choice, and you should pick the right stocks for cashing in on such an opportunity. Have a long-term horizon, and you would be pleased with the returns that you get.
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