To participate in the share market, you need to understand what is low and what is high when it comes to buying stocks. In stock trading, the process of wealth generation is simple, buy low and sell high. Buy stocks at an early age and carry them over a journey of growth and value creation. A good folio with maximum returns will be the one, which has stocks with high potential. This is where multibagger stocks come into play.
What are MultiBagger Stocks?
Multibagger stocks are ones, which display a high level of profitability. These stocks evolve gradually. Multibagger stocks could be of those companies, which have a strong performance record, robust and good management and a clear future strategy. The stocks from such companies can evolve into multibagger stocks in the future.
How to Identify a Multibagger Stock?
1. Be A Good Reader
You need to identify a multibagger efficiently. You need to look for stocks of companies, which have good future potential. Check their products and services. If these products and services have a high demand in the future then the company is on the road to earning some exemplary profits.
2. Management of the Company
When you do equity trading and invest in the stock market, this is as close as becoming a business partner of the company. Here you need to be very choosy of which company to go for. The promoters of such companies are people responsible for the day-to-day management of the company. You need to check the quality of the management. If the management is ethical and has visionary plans then there are high chances of their stocks going multibagger.
3. Check For The Moat
An economic moat is an entry barrier. This entry barrier prevents any competition from entering the market. You can check for a moat in the form of a brand, an IP or a Patent registered under the company. If the company has out of the box and market disrupting business model, then their stocks can turn into multibagger stocks.
4. High Return Ratios And Low Equity Levels
If there are high return ratios then it means the company is generating good returns on the capital employed. The return ratios need to show an increasing trend which means that the capital is being allocated efficiently. Companies, which have low equities have a high chance of becoming multibaggers as there is a high return ratio.
5. Level of Debt
If a company has a low or negligible level of debt then it has a good chance to create huge wealth. If the debt is low, then a company can plough all the earnings for the growth of the company instead of paying the debts.
To do share market trading you need to open a share market account. If you have found a multibagger and have invested in the stock, then it is of prime importance that you monitor the performance of the company. In stock trading, it is a primary task to keep a track of the quarterly results of the company in which you have invested.