Who doesn’t like a windfall? The biggest smile on an investor’s face is when their investment strategy is proven correct. The stock market has the habit of tossing up surprises quite often. Some pleasant ones include holding stocks in your portfolio that you have seen grow exponentially.
What does a multibagger stock mean anyway?
The new generation of investors has taken to online stock trading in a big way. You may have indeed come across some online communities in which the members have collaborated to try and increase the prices of specific stocks.
The success story of WallStreetBets in influencing the price of GameStop stock is almost a market legend. The price climbed up nearly 1700% in a matter of days. But such stocks, although they rise significantly, cannot rightly be called multibagger stocks. Stock prices that appreciate suddenly in this manner may not sustain and revert to the mean price more often than not.
So how can you identify a multibagger?
To truly identify multibagger stocks in online stock trading, you need to delve deeper into the company’s characteristics. Overnight successes are mostly “pump and dump” schemes. Investors should be wary of such stocks. True multibaggers are stocks that represent those businesses that grow consistently over time. To correctly identify a multibagger stock, an investor should look at the following defining features of a company –
- Solid and consistent financial performance.
- Clean Management with a proven track record.
- Planned capital deployment.
- Positive cash flow.
- Presence in an industry with an enterprising future.
- Relevant and in-demand product or service line.
- Having the potential to disrupt the market.
- Strong promoter holding.
Some real-world examples
The year 2022 has already seen quite a few stocks which have given mind-boggling returns. KIFS Financial Services share price has surged by more than 400% in a matter of weeks. This NBFC stock has a market cap of just about Rs. 240 crores. The price of this stock rose from a 52-week low of Rs. 33 to a staggering high of Rs. 336. Similarly, this year, we have seen AK Spintexs share price jump up from the levels of Rs. 25 to an electrifying high of Rs. 119. There are many more such stories from the market from this year itself.
Old-timers have always said that the market gives investors many opportunities. It is at your discretion to transact on the correct chosen one.
Every investor would like to own a potential multibagger stock. You must be cautious of the pitfalls of stocks that are manipulated. Picking up a potential winner requires you to analyse the company properly. Due diligence is the key here. Also, patience is a virtue. You need to give time to your chosen stock to give results. Do not expect overnight success. Rewards will come at the right opportune moment for your correct choices.