In the stock markets, the dream of every investor is identifying the multibagger stocks and holding it till it becomes multibagger, but a retail investor never perform the same due to lack of the things such as screening before investing, no conviction, lack of knowledge, FOMO, fear of small corrections and so on.
But the ace investors never do like this, they will take time to work on it and then if they got the conviction, they will add the stock into their portfolio then they hold it till the stock delivers multifold returns, but the retail investors can’t do the same, just they will book small profits again due to fomo they will again enter at higher valuations and book the losses. This is what retail investors exactly do.
As a retail investor to prevent the same, we should work on the stock after selection to build the conviction before investing, then only we can make some descent profits. By following the tips, suggestions and by investing social media stocks, we’ll never make multifold returns from the stock markets.
So here we are going to discuss the 15 key points to be followed while selecting the stocks, if any stock that is satisfying all the points will become multibagger stocks. These key points are derived from the Philip Fisher, the teacher of the Warren Buffett. Philip Fisher will always followed the below 15 points of check list before investing into any stock.
15 Points check list to find the multibagger stocks:
1. Expanding Market:
The company we are going to invest in, must be in an expanding market, not in shrinking markets, for example AI companies, CASE technology companies, Banking space are the best examples for the expanding markets, the shrinking markets are which they don’t have the future, Ex: hathway cables dominated by OTT and other digital content.
2. Develop New Products and Technology:
The company should always strives to bring new products and should work on new technology which will make them to be ahead in the competitive markets. Best example for this point is the great company Nokia, which is the market leader in the world. But by not adopting the android technology the company lost their presence in the mobile market.
3. Efficient Research and Development:
The effective R&D is much important for every company to sustain in the competitive markets as the consumers will always likes the newness in the products. For example Pedilite Industries brought Fevicol and Fewikwik formulas by spending lot of money and efforts in their R&D, what happened ? the PIdilite Industries is the market leader.
4. Above average sales of competition:
The company should generate the sales higher than the competitive companies or peer companies of the same industry with consistency which indicates the leadership of the particular industry. To know this we should keep track the company’s quarterly results to know whether they are maintaining market leadership or loosing their share to competition.
5. Handsome Profit margins:
If you observe that everyone will stress on margins whenever we discuss about any company, it means margins are that much important for any company. It shows the pricing power and acceptance of the particular product in the market. Market will always reward such companies.
6. Maintaining Profit margins:
Maintaining profit margins is very important for the company, as we discussed in the previous point it shows the pricing power and the product acceptance in the markets. Which is very good for the company.
7. Better Labor relations:
Any company’s management should maintain a good relationships with the downstream employees, the good relations with the labor will always improves the productivity and quality of products as the employees will work with the commitment and dedication.
8. Awesome Executive relations:
The relations between the promoters and the executives shold be always good. The good relations between promoters and executives will helps the company to move forward in right path or direction and that freedom will always helps for better decision making, which is also drives the company in a profitable way.
9. Depth in Management:
Depth in Management means, any company should have a multi leader capabilities, it means any successful management should make ready someone to take the charges. The company should not depend on only person, if that person resigns, company will go trouble. So we should avoid such stocks they wont become multibagger stocks.
10. Great cost analysis:
The key management of the company should have an idea and full control on the costs they are investing and the productivity they are generating. If they have control on these two points, that company would generate constant and improved margins otherwise we may see the volatility in the margins of the company.
11. Great industry specifics:
The company management should have an idea about the key parameters of the particular industry as every industry would have their own key parameters. For example for retail industry, inventory management is too important. If we take Dmart, the goods clearance was faster than the other companies. That’s how we have already seen the appreciation in the stock price.
12. Long range on Profits:
We should select the company which invest the money by forecasting the futuristic profits which always better than the company which not focuses on futuristic businesses.
13. Low Risk for Dilution:
Better we should select the company which generates cash which is most important for any company. That will helps the company to not go for equity dilution or debts, if they wants to invest to expand or to take up new projects. If any company doesn’t generate cash they should go for dents which impacts profits as some portion goes to financing costs.
That’s what we are seeing in the markets, if any company reducing the debts that company will move positively as their profitability improves.
14. Communicates Risks too:
The company management should always inform the risks that they are facing to the investors, so that the investors will assess whether they should keep invested or exit. It’s shows the integrity of the management.
15. Unquestionable integrity:
As the management knows everything about the company, they have the responsibility to share the same to the investors whither it’s good or bad, if its bad the management should try to build the confidence.
Conclusion:
Before investing into any stock or any company we should cross check, whether the selected stock is satisfying all the 15 key points or not, if not satisfying strictly avoid such companies as we have number of companies in the markets. If any company satisfying all these points then there will be high chances to become multibagger stocks.
Here you can also read the Stocks Buying Guide.
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