5 Tips to Spot Stocks for Multibagger Returns

Published : 11 August 2023

By : Sachin Gupta

Initially coined in the book 'One Up on Wall Street' by Peter Lynch, multi-bagger stocks refer to company shares that yield returns more than their initial purchase cost. 

Here is how you can spot stocks that provide multi-bagger returns. 

1. Quarterly and Annual Financial Performance

Check the revenue from operations and EBITDA to understand operational efficiency. A consistent increase is a good sign.

2. Price Multiples

Check EPS (earning per share), Price to EPS (P/E), TTM (trailing twelve months), and Price to Sales (P/S) to identify a growth pattern. 

3. Level of Debt

Check the quarterly and annual debt levels. For a stock to yield multi-bagger returns, the debt level should be on the lower side than the equity.

4. High Return on Capital Employed (ROCE)

A company having a high ROCE and growth suggests that it efficiently uses its invested capital and provides consistent and higher returns. 

5. Increase in Cash Flow

There is a consistent increase in operational cash flows (cash profit minus added working capital), leading to better financial performance and annual growth.