Many new investors are drawn to the stock market because they dream of making big money fast. Who would not want to invest in a stock and watch it grow many times over? Initially, people spoke about “10-baggers”, which meant a stock that grew your money ten times.
But now, we are aiming for even bigger, looking for “100-baggers” stock that can make your money grow a hundred times. This is where the term “Multibagger” comes in, first termed by Peter Lynch.
What are multibagger stocks?
Multibagger stocks are those that yield returns many times their initial cost. These stocks are typically undervalued with robust fundamentals, presenting attractive investment prospects.
Companies associated with multibagger stocks often exhibit sound corporate governance and possess the capacity for rapid business expansion.
You may also like: What are mid-cap stocks?
Multibagger stocks in India
Multibagger stocks are like superstars of the stock market. They typically have a market cap of above ₹ 1000 Cr, indicating that they are established companies with a sizable presence in the market.
If the investment you made grows at a rate of 25% per year for a decade, your capital will have increased to 9.3 times its original size. That is a fantastic outcome in any case.
Market insiders fondly refer to such returns as “multibaggers.” This is the ultimate goal for many investors – the holy grail of investing. They have shown a history of significant gains, with their prices rising by more than 100% in just three years.
|Company Name||10 years Return (%)|
|Avanti Feeds Ltd.||35111|
|Bajaj Finance Ltd.||13,123|
|PI Industries Ltd.||8063|
|Relaxo Footwears Ltd.||6311|
Some more examples of multibagger Indian stocks are:
Tata Motors: Tata Motors’ stock price surged by over 200% in the past year. If you had invested ₹ 10,000 in Tata Motors 10 years ago, it could be worth ₹ 30,000 now!
Laurus Labs: Laurus Labs saw incredible growth, with its stock price increasing by over 300% in the past year.
India’s top private sector bank – HDFC Bank is a great example of a multibagger stock. The banking stock has jumped nearly 30000% since its listing in 1999 to 2023, marking it as one of the top multibaggers in our country.
Source: Google Finance
Investing in multibagger stocks typically involves holding onto them for a longer period to maximise profits when selling them later. The proceeds from selling these stocks are often reinvested into research, development, and production, resulting in significant profits from high sales volume.
Benefits of multibagger stocks
- Financial safety net: Profits from multibagger stocks can act like a safety cushion for unexpected expenses or help you reach big financial goals, like buying a home or retiring comfortably.
- Wealth building: Keeping multibagger stocks for a long time can help you gather more money over the years. It is like nurturing a money-making tree.
- Beating rising prices: Multibagger stocks often grow faster than the prices of everyday things, which means your money keeps its buying power even as prices go up.
- Significant earning potential: Multibagger stocks can grow in value many times over. So, if you invest smartly, you can make a lot of money.
Risks involved with multibagger stocks
- Price hype risk: If people get too excited about a stock, its price might go too high. If the company cannot meet those high hopes, the stock value may drop.
- Wild price swings: Some stocks with the potential for significant gains can also have huge losses. This means you might make a lot of money, but you could also lose a lot.
- Outside forces matter: Factors like the economy, market changes, or unexpected events can affect the company’s performance. Recession or new government rules can also impact these high-potential multibagger stocks.
- Uncertain future: It is hard to tell which stocks will become profitable. Even if a company seems good now, it might not stay that way.
Difference between multibagger stocks and blue-chip stocks
Blue-chip stocks are like reliable elder statesmen of the financial market, since they come from well-established, trustworthy companies with a long history of success, whereas investing in multibagger stocks is like placing a bet on a fast and exciting racehorse.
|Multibagger Stocks||Blue-chip Stocks|
|Multibagger shares are like exciting newcomers. They have the potential to grow fast, but they are riskier.||These stocks have been around for a longer duration in the market and usually grow steadily.|
|These aren’t well-known, but they have the potential to bring profits if they do well.Hence, they are also termed as Hidden gems.||These might not give you super high returns, but they are less likely to suddenly drop since they are known as successful and stable.|
|Multibagger stocks are riskier because they’re often from newer or smaller companies.||These stocks are considered safe since they’re from well-established companies.|
|These stocks do not pay dividends as they’re reinvesting their profits to grow faster.||Whereas these stocks often pay dividends, like getting a small bonus from the company.|
|These are often seen as short-term investments for potential significant gains, as they go up fast, but they can come down as quickly. More like a financial roller-coaster.||These stocks are often held for a longer duration considering their stability. Often considered a reliable friend in the financial markets.|
How to identify multibagger stocks?
Generally, companies with massive potential growth issue multi bagger stocks. However, in some cases, these stocks tend to have adverse impacts on the economy. Hence, it is essential to go through various factors before identifying a multibagger stock.
Below are a few pointers for identifying potential multibagger stocks:
- Strong company performance
- Unique products or services
- Strong management team
- Reasonable valuation
- Growing market
By understanding these pointers you can know how to invest in multibagger stocks.
Also Read: What is mark to market?
Deciding whether to invest in multibagger stocks boils down to how comfortable you are with risk and what you want to achieve with your investments. While they offer the chance for big profits, they can also be quite unpredictable.
It is super important to do your homework and spread out your investments.If you are up for the thrill and risk, multibagger stocks can be an exciting part of your investment plan.
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