How to track progress of a stock and find a potential multibagger — explained
3 min read 23 Mar 2023, 01:17 PM ISTMultibagger stock: Fair value of a share helps you enter or exit a business on right time, say experts
PremiumStock market investment is highly risky among other asset investment options but a good number of investors are making money from this as well. According to American billionaire, money is not in buying in selling of stock but in wait. However, it doesn't mean you buy a stock and hold for two to three decades and expect whopping return on your money. What the successful stock market investor is trying to suggest here is to have proper tracking of a stock and then you should invest in it and keep on tracking on some parameters. You should hold a stock till the stock progress suggest rising fundamental growth of the business.
According to stock market investors, if you want to track the progress of a stock, you should know some variables like margins, RoE, RoC, PE multiple, fair value of the stock, CAGR, etc. They said that one needs to track the expansion and research and development of the company as well as it helps you track performance of the business on margins front.
Stock market variables that matters
Elaborating upon how to track progress of a stock, Ravi Singhal, CEO at GCL Broking said, "If you want to track progress of a stock, you should first look at the CAGR of the stock in last four to five years if not for a decade. If helps you know whether the stock has been logging profit with growth or profit with loss. Means whether stocks' growth is rising continuously or its zig-zag. A zig-zag growth would mean turbulence in management or business. But, this turbulence can be internal or external. In case of internal turbulence like Silicon Valley Bank collapse, then it's better to avoid taking any position or maintaining position in the stock. However, in case of external turbulence like bank crisis in US that had put stock return of other banking stocks across world, then it should not be a big worry for an investor."
Apart from CAGR, Ravi Singhal of GCL Broking advised stock market investors to track progress of a stock on PE, RoE and RoC front as well. He said that PE multiple quoting below the industry PE is always good and one should remain invested in a stock till PE is below industry PE. But, it is not a universal formula as market runs on sentiment and recently we witnessed Adani Enterprises shares and other Adani group stocks that remained a poster boy of the Dalal Street in post-Covid rally despite high PE than the industry PE. This could become possible due to regular expansion and takeover by the the company, which enabled the positive sentiments to sustain despite high valuations.
On how to track progress of a stock, Avinash Gorakshkar, Head of Research at Profitmart Securities said, "Fair value of a stock is an important fundamental factor. One should continue to check fair value of the stock and decide entry or exit on the basis of the fair value. If the stock is trading below its fair value, then one should continue with one's position despite short term triggers (positive or negative). However, one should exit a stock if the fair value of the stock and actual stock price are close or almost equal."
How to find potential multibagger stocks
On how fair value of a stock can help a stock market investor, one needs to check-in at value adviser Manish Goel's facebook wall or his blog — manishgoelstocks.com. In his blog post Manish Goel explained the value of management quality and integrity of a business citing, "All other strengths of a stock is useless if the Management Quality and Integrity is doubtful or sub standard." Manish Goel explained with example of Suryalata Spinning Mills shares, which has almost doubled shareholders' money in YTD time. But, he still sees more rise in the stock as Benjamin Graham's formula suggests that fair value of the textile stock is around ₹1,167 per share.
Avinash Gorakshkar of Profitmart Securities advised stock market investors to keep an eye on the quarterly results of the company as it helps you track margins of the business and finally the fundamentals of the stock.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.
