There are many stories in market where stocks shot up to 70-100 baggers in matter of decade. These companies don’t get there just because of mere luck but they had something unique in them. They stand apart from crowd of other ordinary businesses. For earning big you must have to find such stocks which have potential to the 100 bagger stock and of course lot of patience to hold such stock for 5-10 or 15 years.
In this post we will cover few factors which have repetitively seen in most of the multibaggers stories. Factors described below are like ground rules they have worked in past and will continue to work in future. So without wasting any time let’s dive into most common traits in 100 bagger stocks.
Companies considered to find common factors are Page Industries, Avanti Feed, Cera Sanitaryware, Titan, TTK Prestige, Safari Industries.
Differentiation over commodity products
All the companies that made to this list have common feature of unique differentiated product simple reason for it is if company have unique product then they have pricing power they can charge more and earn high return on their investment.
If you are thinking to invest in company that sell commodity product then think again this may not give such high return.
Reason for this is simple commodity product compete on the basis of cheapness only and this reduces their profit margin to very minimal level.
Almost all above companies take effort not to just sell different product but to create brand identity among customers.
Brand awareness gives following things.
- Pricing Power.
- Customer Loyalty.
- Low competition threat from cheap non branded products.
- Repetitive Buying .
- Bandwagon effect.
- Word-of -mouth marketing.
- Repetitive buying by same customers.
One common technique for that Cera, Symphony, Page and TTK Prestige followed is to form brand stores and product galleries.
Brand awareness is the only way to get extraordinary return for long period of time.
To be first in market
Whenever new technology is brought to market first adapters always earn bulky premium same thing happened with these companies.
>> Symphony was to bring modern in house coolers.
>> Prestige was first to bring cookers and induction products.
>> Page was one of first premium underwear segments in India.
>> Titan was first to get approval for manufacturing watches in India.
All businesses start small but not all business models have same potential to grow. Some have ability to scale to whole world but some have their specific niche. Investor shall try to find stocks that are largely scalable not that niche companies don’t make money but they have some upper cap to their revenue. Probability that globally scalable company will grow bigger than any Niche company is way more.
All the companies stated above ware scalable but they did not started their business in whole India at once. They first started their business operations from a specific region or state and then slowly copied their business models to other areas.
So it is best to find we managed company which can be scaled to pan India but is currently operating to specific area.
Smallcap and Midcap Segment
Big money can be made if company is identified at earlier stage of development. Reason is simple when companies are small and business models are scalable then there is vast room for them to grow.
Take example take Page industries now in 2020 it has captured 65-70% market share so there is no way for any company to grow at 20-30 per annum in such stage. If we flashback to 2008-09 page was 500 crore market cap companies with vast market to explore.
All the businesses which discussed above are still well mangaed like before but problem is with size of market. As investor analyse any company he should also look for size of market its products has or market that can be created in future because you can’t fit 2kg of cement in container with 1 kg capacity.
Less external dependencies for raw material or capital
When provision of product and services is based more dependent on skill than on availability of raw material then there is more consistency in profit margins of company.
In many industries companies have to import majority of raw material so there is always forex risk. Similarly, If any commodity is used as raw material like crude oil, cement, metals there is always risk that commodity prices take wild turn causing rising cost of raw material and thus loss of profit for companies .
Other is dependency for capital if company is making operating cash of say 100 million $ but if it require 120 million$ capital investment then although there is sufficient growth there will be need of external funding which slowly hampers profit .
The common thing that found in many multibaggers is lack of suck risk. Less risk related to raw material and suppliers brings consistency in profits and revenue. Markets always price consistency more than volatility.
Leveraging lifestyle change
When there is lifestyle change then huge market is created as for much period of time there is very less competition to provide people what they need . Thus company entering into new market at initial change get very large share of market.
In India there are two major changes happened in two decades, first is awareness toward education and second is internet revolution. This two things combinedly created a very large market of Online Learning. One company leveraged the change was Byjus. The market potential is so large that this company achieved 5 billion $ valuation in matter of 09 years. There are thousand of listed companies in India who couldn’t achieve it even after 50 years of operation. This is what large untapped market can do.