If your investment grows by 25% per annum for 10 years, your initial investment capital will multiply by 9.3 times and you will have a 10-Bagger stock in your portfolio in 10 years. Market participants refer to these returns as multibagger returns!
Many growth stock investors usually pay almost any price for a stock as long as earnings are expected to grow at a high rate. This is the simple reason why we see stocks like Bajaj Finance, Bandhan Bank or other high PE stocks trading at such expensive valuations. However, with such high valuations there is always a concern regarding continuity of growth. In case if there is slow down in growth, we can see significant price correction in these high quality stocks as market will not continue to give them high PE due to expected slowdown in growth in future. We have seen how one of the mega wealth-creator stock of last 5 years - Avanti Feeds have fallen by more than 60% from its peak due to slowdown in its shrimp feed business over last 1.5 years.
If you are looking for multibaggers, your stocks must have have high growth rate along with expanding PE ratios. High growth rate and lower PE multiple not only ensures that stock delivers much higher returns compared to its actual growth in medium to long term but also limits the downside risk. Hence, its important to know whether there is enough scope left for a PE rerating to take place in future as the company grows in size and increase its market share.
Market is giving one of the rare opportunity to get quality stocks at bargain prices. Remember, such opportunities do not last for long! Since Jan 2018, broader markets have witnessed significant correction. At current scenario, when Small & Mid Cap Index is down by 27% and 16% respectively from their peak made in January last year and significantly underperformed Sensex & Nifty, no body want to touch that space. Most of the liquidity in small & mid caps has dried up and found its way to large caps over last 15 months. At this juncture, large caps looks fairly valued or expensive in terms of valuations, however small & mid cap companies with robust businesses look attractive to reasonable and can reward long term investors in big way. In fact, some of the worst times to get into the market turned out to be the best times for long term investors and same seems to be applicable now for Small & Mid Caps.
If you are planning to invest in potential multibagger stocks, its the right time to have higher investment allocation in small and mid caps over large caps. With stable government in place and lowering interest rate scenario, broader market is expected to outperform significantly giving better returns compared to major indices - Sensex & Nifty over next couple of years. If you have patience and want to add extra power in your portfolio, start investing some portion of your savings in fundamentally strong small and mid cap companies - Hidden Gems and Value Picks.
“The first rule of investment is ‘buy low and sell high’, but many people fear to buy low because of the fear of the stock dropping even lower. Then you may ask: ‘When is the time to buy low?’ The answer is: When there is maximum pessimism.”
- Sir John Templeton
Techno-Funda Stock Pick 2019 report is a detailed report which covers company's background, Industry outlook, positive developments, financial performance of the company along with peer group comparison, key concerns & risks, technical analysis, fundamental analysis and Saral Gyan recommendation.
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i) Are you Investing in Potential 5-Bagger in 5 Years Stock?
ii) 6 High Quality Small & Mid Cap Stocks to Buy Now
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