Multibaggers of the Next Decade

Feb 25, 2020

Editor's note: I was live online at the Rebirth of India summit yesterday. The video of the summit is available for a short time. Watch it here.

Tanushree Banerjee, Editor, The 5 Minute Wrapup

Curiosity about a new year is at its peak at the start of the year.

January 2020 was not just a start to the year but also a start to the decade.

So, I expected StockSelect subscribers to be curious about the stock markets have in store. The topic of my December 2019 StockSelect webinar was Top Multibaggers of the Decade.

Instead of focusing on only one year, which could have been an anomaly, I recommended looking at the multibaggers over the past decade and see if we could predict anything about the multibaggers of the next decade.

So, first I talked about the Top multibaggers of the past decade.

I showed this chart.

Multibaggers of the Last Decade

What I wanted to show here is that the gains in Avanti Feeds and Bajaj Finance have, of course, been extra ordinary at 350 times and 132 times respectively.

These have been, what I call crorepati stocks, of the past decade. But even the gains in others like PI Industries, Symphony and Eicher could have turned every Rs 1 lac into 88 lacs, 66 lacs and 33 lacs respectively.

So whichever way you look at it, bagging just a few of such decadal multibaggers can make a huge difference to your fortunes.

Next, I talked about the key characteristics of multibaggers stocks.

The easiest way to track what helped these stocks have such a long runway of superlative returns is to find similarities in their quantitative characteristics. And here they are:

  1. Capital efficiency

    The companies able to generate consistently higher returns on their shareholders' equity. The idea is the more profitable the company gets, the more value it will create.

  2. Low leverage

    If you see, apart from Bajaj Finance, which is a NBFC, the other companies had minimal debt. This is extremely important for companies to tide over periods of tight liquidity and high interest rates.

  3. Profitability with low capex

    At the start of the decade, most of these companies had already done the hard work of building plants and machinery for future growth. So, they were already in a ripe phase to benefit from their efforts.

  4. Scope for PE expansion

    Stocks with low PE multiples tend to have a huge room for PE expansion if the business and management went in the right direction.

If I must pick just one characteristic or ingredient that has been the key catalyst of these multibagger stocks, it would be their PE expansion. Larger the PE expansion higher has been the quantum of returns for the top multbaggers.

To prove my point, I showed this data.

Gains (%) No. of Companies Avg PE 2009 Avg PE 2019
4,000 to 10,000 6 6.5 51.1
1,000 to 3,999 48 20.4 60.1
500 to 999 50 25.1 42.2
100 to 499 121 26.5 32.2
10 to 99 61 22.2 29.9
Data source: Ace Equity

Needless to say, the top 100 odd companies which gained up 1000% have had extraordinary fundamentals. But what really made the difference between them and the 10,000% gainers was the quantum of expansion in PE multiples.

I concluded the webinar with a recap of the quantitative and qualitative factors that can together allow companies to achieve fantastic results on the bourses over the next decade.

I spoke about my top 7 stocks for the decade at the Rebirth of India summit yesterday. The video of the summit is available for viewing...but only for a short time.

Watch the Rebirth of India video here.

Warm regards,

Tanushree Banerjee
Tanushree Banerjee
Editor, The 5 Minute WrapUp
Equitymaster Agora Research Private Limited (Research Analyst)

PS: I was live online at the Rebirth of India summit yesterday. The video of the summit is available for a short time. Watch it here.

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