Six Recommendations to Follow While Selecting Multibagger Stocks

A major factor that generates value in the Indian stock market is consistent growth across distinct market cycles. When we consider the stock market in India over the past few years, we’ve notice distinct scores of multi-baggers in the stock market. Even if we consider a short time frame, there have been innumerable incidences where mid and small-cap stocks have multiplied revenue many times on their way to convert into large-cap stocks.

It is essential for stock to create consistent growth in the economic market. Most of the multi-bagger stocks are usually high growth entities in the non-cyclical businesses. It is quite difficult to identify a multi-bagger in a commodity business such as aluminium, oil, or steel. 
You can approach the returns from shareholders in different ways. There are numerous measures of utilising the capital, but two important measures are Return on Equity and Return on Capital Employed. The Return on Equity or ROE measures the shareholder's return and is a vital investment parameter. A consistently low Return on Capital Employed or ROCE symbolises that there is something wrong with the company or business.
High Corporate Governance Standards
A huge emphasis is placed by the market on corporate governance. And the market is interested to pay a huge premium for it. Some of the important parameters of companies holding good corporate governance are:
A company must have high standards of disclosure of information related to its shareholders. In fact, if a company is ever in doubt, it must disclose the same.
A prominent reason that makes it quite difficult to identify multi-baggers from industries such as infrastructure, utilities, and metals is that they hold a capital intensive model. Because of their capital intensive business models, the companies result in a very low return and high leverage ratios.
When the leverage is high, it increases insolvency risks in the cycles when economic growth is down. However, when the debt is low, the complete issue of the financial risk overcomes easily. 
There are companies with an impeccable reputation. But it is not necessary that such companies always offer a good stock to purchase. There can be various reasons for it. Mainly, it could be because of the fact that most of the related triggers are already mentioned in the price. For this reason, the potential for future growth does not justify its valuations.
Though it is not guaranteed that the above-mentioned parameters can always help you identify the best multi-baggers, but sure they can go long way to help investors avoid investing in companies that may end up in losses and destructions.