Multibagger stocks are stocks that can yield phenomenal returns in a matter of a few months or years. These stocks give super returns far ahead of the benchmark indices. Such stocks have known to give 100, 200 and even 500% returns. Here are a few things to look for before buying a multibagger stock.
Low equity base always benefits
Lower the equity base sharper would be the rally. A slight improvement in profitability would push the EPS higher, because of the low equity base, thus pushing the stock higher.
Low free float
When the promoter holding is high and the equity is low, the free float is low. So, a slight increase in demand for shares could propel the stock very high, because demand is high and free float is low.
From losses to profits
Companies that could turnaround operations in the near future are likely to rally at a fast and furious pace. These could churn significantly higher returns in a very short time.
Good management will reward a shareholders
While selecting stocks, whether multibagger or otherwise, it's important not to compromise on quality of management.
Look for stocks that have not run-up sharply
It would be foolish to chase stocks that have already rallied. Look for dark horses, that have not yet been identified.
Seek opinion if needed
If you do not have an idea of fundamental research, you could well be deceived. Seek expert opinion and restrict exposure if you are not sure.
In India many sectors have rallied after a new government was formed. Look for such sectors. At the moment many analysts have set their sight on the Shipping sector. Look for candidates in the sector.