| Various facets of a Potential Multibagger |
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Honest trustworthy managements are most likely to incubate high growth companies . See the section "Management – Fair or Foul" | |
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Market pays for growth and nothing but the growth. Companies that grow in excess of their ROE can do so only by taking more debt. Without debt the sustainable growth cannot exceed the ROE x (1- pay out ratio) | |
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External opportunity /Competitive Advantage | |
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The size of opportunity is very important. One has to think in terms of the volume growth that the company can generate. Look for leaders in the Industry either No. 1 or No.2 . Look for niches and scalability. Insurance, Telecom, retailing, Entertainment are some businesses where the size of external opportunity is huge.
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The Sector as a whole should exhibit growth. Preferably it should be a new sector | |
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The Market cap should be less then Rs 500 crores. There is a very high probability of getting a multibagger out of a small cap. See how small market cap companies have created multibaggers in the last decade. | |
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Price Earnings (PE) in relation to growth
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The Price Earnings should be less then the growth. In other words the Price Earnings to Growth PEG should be less then 1.Always buy low PE stocks because a low PE means that growth has not been factored into the stock making it fit candidate for a PE re rating
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