Honestly, there is no secret recipe of discovering a multi-bagger. Multi-baggers are not created on Day 1 - they evolve over a period. The clear aim while we look for them is whether they have the potential to grow over a period of time. Generally, most of the investors adhere to a bottom up method while finding stocks for investment. The primary objective is to buy companies which are trading at much lower levels as compared to their fair value. Some of the investors wait for the blue-chip companies to trade at reasonable levels so that they can enter.
There are many factors which one must contemplate like pricing, brand, power, potential of the industry/product and, of course, the most important thing, valuations. Also, it is very crucial to consider the big picture instead of just getting involved with number crunching on a spreadsheet of excel.
Let us have a look at few factors to keep in mind before selecting multi-bagger stocks on NZX:
How to Find Multi-Bagger Stocks?
Study the Company: Most of these stocks are hammered down to low levels because of certain short term negatives - either the sector is being impacted by some external factors or because of the unsatisfactory results of the company. Sometimes when the stocks are available so inexpensive, you start questioning your conviction. The key factor is to create your own opinion and study the company thoroughly.
Robust Balance Sheet: Another important factor is growth. Future long-term growth is one of the key parameters for the stock to grow as a multi-bagger. Therefore, sustainable profit growth and revenue growth is one of the feature of a multi-bagger. Also, it is very crucial to distinguish between stock performance and business performance. You must also look at the balance sheet strength of the company. In tough times like these, the companies with strong cash flows and low debt are going to sustain.
Strong Management Committee: An important aspect is the company’s management. A strong, ethical as well as visionary management is likely to help the company in positioning itself among the multi-bagger stocks.
Barriers to Entry: The business uniqueness is important to assess multi-bagger stocks. The barriers to entry restricts competition, and, hence, disruptive business model can help the company to grow significantly. The company which is having distinctive technology, patent, IP or even branding of the product might get placed amongst NZX multi-bagger stocks.
Macro-economic Environment: While making investments, market players need to closely assess the macro-economic environment and how government policies could influence the company in the long-term. If government policies are likely to support the industry in which the company is operating, then there are chances that the company can witness tremendous growth.
Strong Revenue Growth: The investors need to carefully evaluate the growth drivers of the company. Investors should invest their money in the company which is having strong revenue growth as compared to its peers.
Let us now have a look at few NZX multi-bagger stocks:
Source: Thomson Reuters
We will now have a look at some of the stocks which are listed on NZX.
The a2 Milk Company Limited (NZX: ATM)
The 5-year return of ATM stood at 3,698.08%. The stock ended at NZ$19.750 per share on 22nd April 2020. The stock’s 52-week high and 52-week low stood at $20.300 and $12.190, respectively. The company has a market capitalisation of around $14.55 billion.
Fisher & Paykel Healthcare Corporation Limited (NZX: FPH)
The 5-year return of the stock stood at 320.18%. The stock ended at NZ$27.900 per share on 22nd April 2020. FPH’s 52-week high and 52-week low stood at $32.220 and $14.850, respectively, and the company has a market cap of $16.03 billion.
Blis Technologies Limited (NZX: BLT)
The 5-year return of the stock stood at 270%. The stock ended at NZ$0.074 per share on 22nd April 2020. The stock’s 52-week high and 52-week low stood at $0.10 and $0.03, respectively, and the company has a market cap of $81.96 million.
Scales Corporation Limited (NZX: SCL)
The 5-year return of the stock stood at 206.05%. The stock ended at NZ$4.900 per share on 22nd April 2020. SCL’s 52-week high and 52-week low stood at $5.450 and $3.300, respectively. The company has a market cap of $693.73 million.
Pushpay Holdings Limited (NZX: PPH)
The 5-year return of the stock stood at 246.19%. The stock ended at NZ$3.900 per share on 22nd April 2020 and has a positive EPS of $0.172. The stock’s 52-week high and 52-week low stood at $4.940 and $2.360, respectively, and the company has a market cap of $1.07 billion.