No image 5paisa Research Team 11th December 2022

What are the signs of a multi-bagger stock?

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The idea behind investing in the stock markets is to earn a good profit. Imagine this, what if the stock you invest in turns out to be a multi-bagger? Multi-bagger stocks can exponentially increase your profits as compared to any other well-performing stocks and are, hence, considered as jackpots in the world of equities.

But then the question arises: how do you determine if the stock you are going to invest in is a multi-bagger or not? If every second stock were a multi-bagger, a lot of investors would have already claimed the jackpot. But as they say, “Only a few can differentiate between coal and a diamond.” Similarly, if you are to distinguish between an ordinary and a multi-bagger stock, all you need to do is pay attention to the details.

But before we get into the details of how to find a multi-bagger stock, let us first understand what it means.

What is a multi-bagger stock?

A multi-bagger stock is a stock that is currently undervalued but has the potential to earn more than 100% of its current value in the future. These stocks are not meant for instant reaps and one has to be patient enough to be able to see their bright side in the long-term.

The most important aspects of multi-bagger investments are the promising nature of the stocks and the timing; if you perceive both correctly, you could see the results making way towards your bank accounts in the form of bumper profits.

How to identify a multi-bagger?

Here are a few signs that could help you identify a multi-bagger stock:

  • Focus on the sector: Before zeroing in on the stock, it is important that you focus on the sector. Choosing the right sector helps you find the right stock by giving you more room for research and predictability. Knowing about the sector could tell you a lot of things about the stock’s growth prospects in respect to the country’s economy and markets, thus, helping you set towards a right direction.
  • Look at the fundamentals, closely: To identify a multi-bagger stock, you need to look at its fundamentals in detail. It is the fundamentals that lay the foundation for future growth prospects and thus, it is very important to ensure that this foundation is strong enough to bear the tall building of multi-bagging growth.

    Fundamentals include revenue plans, cash inflows, strategies, whether the management is reliable and growth-oriented or not, their vision, as well as the brand ethics. Together, these factors help build a strong foundation that ensures stable exponential growth in the future.

  • Current status and future plans: Though the current status of the company might not be good, it acts as the reference point to measure its future growth prospects. A good strategy with a clear vision can be a good sign to ensure if the stock is a multi-bagger or not.

With these factors, you can identify a multi-bagger stock and make long-term investments to claim your own jackpot from the stock markets

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