Apr 16, 2012|
Can stocks go up 1,000 times?
It is not for nothing that stocks are called as the most attractive asset class over the long run. If the business opportunity is huge and is pursued with strong focus on profitability and shareholder value creation, sky is the limit we reckon. Forget 10-baggers, 100-baggers or even 500-baggers for that matter, stocks could go up so much that they have the potential to become 1,000-baggers. In other words, the earliest shareholders can see their wealth go up as much as 1,000 times and that too, within a pretty reasonable time horizon of 2-3 decades. Although the time horizon in which such gains are achieved can be longer in some cases and shorter in others.
Are there any such stocks in India currently? There certainly are we believe. The table below highlights the stocks from the BSE-200 universe that have gone on to become 1,000 baggers since the time of their inception. Put differently, the table consists of the list of stocks where current prices are more than 1,000 times the face value of these entities.
|*Latest price as on April 13, 2012
So, are there any common set of qualities that have made the above mentioned stocks phenomenally successful? We certainly think so. As can be seen, all the stocks mentioned above are part of industries that are not only big currently but also have huge growth potential going forward. Besides, almost all the companies in the list are runaway market leaders in their respective sectors. Not to forget their pristine balance sheets and the high returns on capital as compared to their peer group.
The above table also makes us think about all this hullaballoo most people place on valuations being in right ballpark. For if investors would have overpaid slightly more for this companies, they would have had hardly any reasons to complain over the long term. This thus goes to show that over the long term, it is the business model, the quality of the management and the return on capital employed that matters and not so much the valuations. Of course, this does not mean that one buy the company at even the most absurd level of valuations. This is certainly not advisable. What can be done though is that a small premium can be given if the quality of the business is too irresistible to pass up. For not doing so could result in a heavy notional loss. As Warren Buffett has rightly pointed out, it is far better to buy a good business at a fair price than a fair one at a good price.
||Rahul Shah (Research Analyst), Managing Editor, Microcap Millionaires has led the team from the front in developing some of our most stringent and rewarding research processes. As per his own admission, the turning point in Rahul's life as a financial analyst came a few years back when he got introduced to the works of Warren Buffett and Charlie Munger. From Buffett, he understood the value of investing in good quality business with powerful moats and strong management teams. Charlie Munger on the other hand inspired him to be a lifelong learner and use mental models in order to arrive at the crux of matters across most disciplines. Rahul firmly believes that in order to be successful at investing, you have to do the big things right and possess a great temperament and a contrarian streak.
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