»Profit Hunter by Equitymaster

On This Day - 23 JULY 2021
How to Find 100 Baggers

Richa Agarwal, Research analyst

Small-cap stocks have been on fire since last April. Even a global pandemic has not stopped a three-fold rise in the smallcap index.

While this run up could be easily attributed to global liquidity, the underlying and comforting fact is that fundamentals of stocks with low market cap have improved, with a better balance sheets, profits, and cash flows.

It's heartening to see that despite the pandemic, lesser known and tracked companies are witnessing sharp growth in sales and profits as compared to pre-pandemic times.

Improving fundamentals, along with the shot of global liquidity, could do wonders to the potential returns in some of these stocks.

But how can one maximise the possibility of finding these big winners in a sea of listed stocks.

Perhaps, the history could give us some answers.

A few months ago, I ran a query on 100 baggers in the last decade to find some common traits that could help us find future winners.

What I got was a list of 20 stocks. The listed universe comprises thousands of companies.


It's like finding needles in a haystack, unless you have a strategy - the right tools and approach.

These 20 stocks included the likes of Avanti Feeds, Bajaj Finance, Alkyl Amines, Deepak Nitrite, Tasty Bite Eatables, Astral Polytechnik, among others.

Most of these are well known names now. A decade ago, most were not a part of public consciousness.

As you can see, they all belong to different sectors - chemicals, food, finance, plastic products, and so on.

They have been through the phases of huge corrections in the low market cap stocks, the IL&FS debacle, demonetisation, GST related disruption, and the Covid crisis.

Despite all these macro shockers, they did well.

The list further underscores my belief that finding multibaggers doesn't have anything to do with chasing sectoral themes or macro themes like oil prices, currency movements, interest rates, and so on.

It's about how much value a company can create in its niche.

The biggest differentiator is the management team, a factor that needs to be qualitatively assessed.

Here's what is most interesting about this list - All of these 100 baggers began as companies with marketcaps less than Rs 5 billion. The only exception is Bajaj Finance with a marketcap of Rs 23 billion in the year 2011.

It's a universe highly ignored by big investors and institutions.

The reason?


There are just not enough shares available in the market to invest their huge sums of money.

Even in my smallcap recommendation service - Hidden Treasure - I can't consider some of these stocks. This is simply because the trading volume in these stocks is too low to accommodate a large number of investors simultaneously.

Now this is exactly the universe I'm focusing on for a select group of subscribers. I'm betting on it to find future 100 baggers.

Now it's a given that bagging 9900% gains (a 100 bagger) needs long term horizon.

However, what is lost in the annual CAGR statistics associated with such returns is that in real life, you do not get the same return every year.

Let me show you a real example of how this journey unfolds.

Alkyl Amines had a market cap of less than Rs 1 billion, with barely 11,000 shares traded on a daily basis in the year 2010-11. The stock was priced well below Rs 50 and traded at a price to earnings ratio of 7 to 8 times.

Today, the stock is up 12,640%. An average annual return of over 60%.

In the last one decade, the stock has multiplied its topline and operating profits by 14 times and 65 times, respectively.

It's rare to visualise such runway in case in case of largecap, and even in the case of most smallcap companies.


Here's what you need to know about these stocks.

Such gains need patience. I'm not talking a year or two here.

For Alkyl Amines, the major gains have materialized in last one year itself, when the stock got the push from rerating in its P/E multiple and growing liquidity.

In some rare cases, you could just be lucky and see a big chunk of these gains within a year or two.

But that's luck.

To make big money in this space, you need to have the patience for phases when nothing spectacular happens.

You should be fine being bored and accept the volatility that lesser known stocks might face in the early stages.

Sometimes, a re-rating might take a bit of time as big investors take time to recognise the opportunity.

And so will the returns on these stocks.

You may lag in the short term, but take comfort from the fact that the wealth you will earn in the long term will stay.

Last but not the least...

When you bet on a bunch of these stocks, not every stock will turn out the way you would expect it to be.

Some might even disappoint.

Having the right asset allocation will allow you to remain invested and a see a few of them meeting their promise.

Remember, a few is all you need for a winning portfolio.

Now you know why investing in this space is not everyone's cup of tea. You need to have the right temperament. More so in a world spinning out Robinhood millionaires.

That's why when I pick up stocks from this space, it's only a few subscribers that get to know about it.

Warm regards,

Richa Agarwal
Richa Agarwal
Editor and Research Analyst, Hidden Treasure

Copyright © Equitymaster Agora Research Private Limited. All rights reserved.

Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement

Disclosure & Disclaimer: Equitymaster Agora Research Private Limited (Research Analyst) bearing Registration No. INH000000537 (hereinafter referred as 'Equitymaster') is an independent equity research Company. The Author does not hold any shares in the company/ies discussed in this document. Equitymaster may hold shares in the company/ies discussed in this document under any of its other services.

This document is confidential and is supplied to you for information purposes only. It should not (directly or indirectly) be reproduced, further distributed to any person or published, in whole or in part, for any purpose whatsoever, without the consent of Equitymaster.

This document is not directed to, or intended for display, downloading, printing, reproducing or for distribution to or use by, any person or entity, who is a citizen or resident or located in any locality, state, country or other jurisdiction, where such distribution, publication, reproduction, availability or use would be contrary to law or regulation or what would subject Equitymaster or its affiliates to any registration or licensing requirement within such jurisdiction. If this document is sent or has reached any individual in such country, especially, USA, Canada or the European Union countries, the same may be ignored.

This document does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Our research recommendations are general in nature and available electronically to all kind of subscribers irrespective of subscribers' investment objectives and financial situation/risk profile. Before acting on any recommendation in this document, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek professional advice. The price and value of the securities referred to in this material and the income from them may go down as well as up, and subscribers may realize losses on any investments. Past performance is not a guide for future performance, future returns are not guaranteed and a loss of original capital may occur. Information herein is believed to be reliable but Equitymaster and its affiliates do not warrant its completeness or accuracy. The views/opinions expressed are our current opinions as of the date appearing in the material and may be subject to change from time to time without notice. This document should not be construed as an offer to sell or solicitation of an offer to buy any security or asset in any jurisdiction. Equitymaster and its affiliates, its directors, analyst and employees will not be responsible for any loss or liability incurred to any person as a consequence of his or any other person on his behalf taking any decisions based on this document.

As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

Equitymaster Agora Research Private Limited (Research Analyst) 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407