The year 2022 was the year of the stock market. The stock market skyrocketed and gave excellent returns to investors.
We are about to enter 2023. 2023-24 as I forsee would be the year of the stock market again. Sensex can reach a level of 75000 in the upcoming year.
Many of you are looking for new opportunities and stocks for investments. Well, in this post I will share 5 Penny stocks that have already become multibagger stocks in 2022. I will also share the method to find future multibagger stocks.
What are Penny Stocks?
Penny stocks are low-market capitalization stocks available at a very low price. The price range of penny stocks in India is Rs.0.50 to Rs.10. These types of stocks are illiquid. The fundamental and business model of these types of stocks is very weak. However, penny stocks can turn out to be multibagger in a short period.
What are Multibagger Stocks?
Multibagger stocks are stocks that provide extraordinary returns to investors. Suppose you have purchased stock with Rs.100 and after a few years you sold it for Rs.500, then it is 5-bagger stock for you.
Similarly, if you got 10 times the returns on your original investment it is 10-bagger stock.
Remember, you will not get an overnight return on these types of stock. You need to wait for a few months or years to get returns.
5 Penny Stocks Became Multibagger Stocks in 2022 – 2000% Returns
#1 Kaiser Corporation
Kaiser Corporation is India based company engaged in printing activities. The company undertakes printing mainly for small and medium corporate labels and cartons.
The stock of Kaiser has given a magnificant return in 2022. The stock price on 3rd Jan 2022 was INR 3 and today i.e on Dec 2022 the stock is trading @ INR 56.
This means Kaiser Corporation penny stock has become multibagger stock by giving 1760% returns in 1 Year.
#2 Alliance Integrated Metaliks
Alliance Integrated Metaliks is a fabricated structure metal manufacturing company. The stock of Alliance Integrated Metaliks has given excellent returns in 2022. The stock price on 3rd Jan 2022 was INR 2 and now it is trading at INR 45.
This means Alliance Integrated Metaliks penny stock has become multibagger stock in 2022 by giving 2150% returns in 1 year.
#3 Hemang Resources Ltd
Hemang Resources Ltd is an India-based company that deals in trading all types of coals, stevedoring, logistic service, and land trading. Hemang Resource Ltd is next in the list of penny stocks to the multibagger stock list of 2022.
The stock of Hemang Resources Ltd was available only at INR 3 in Jan 2022 and Today it is trading at INR 54. This means Hemang Resources Ltd has given 1700% returns to the investors.
#4 Sonal Adhesives Ltd
Sonal Adhesives Limited is one of the largest manufacturers and exporters of BOPP Self Adhesive Tapes and Various types of Speciality Adhesives & Emulsions in India.
The stock of Sonal Adhesives Ltd was available for INR 10 in the year Jan 2022. Today the stock price is INR 115. This means this penny stock has become multibagger stock by giving 1050% returns in 1 Year.
#5 KBS India Ltd
KBS India Ltd is an Investment service provider company. KBS India Ltd helps you to select your investment avenue. The stock of KBS India Ltd has turned out to multibagger stock from penny stock in 2022.
The stock price of KBS India Ltd was INR 10 in Jan 2022 and today the stock price of KBS India Ltd is INR 111. This means the stock of KBS India Ltd has given 1010% returns to the investors.
How to Find Multibagger stocks for Investment?
In order to find multibagger stocks, you can do two types of research/analysis about a stock.
1. Qualitative Analysis
Qualitative analysis is a scientific method of observation to gather non-numerical data about the stock. This includes brands, product range, management, promoter holding etc.
2. Quantitative Analysis
Quantitative analysis is a method of getting numerical (quantity) data about the stock and doing analysis. This includes financials, cash flow, debt level etc.
First, let’s try to focus on the qualitative factors of the stocks.
Competitive advantage means favorable circumstances that put business ahead of the competition. It includes products & services. You also need to consider branding as well as a monopoly in business. This factor allows a business to perform better and get price advantage and market share over peers.
In order to find this quality, you need to ask the following questions while analyzing a stock.
Do the company offer unique products? – A company can achieve a competitive edge via unique products. You need to check if the company is offering unique products or not. A company like Reliance Jio is offering Jio Fiber at a competitive rate. This gives a durable competitive advantage of Reliance Jio.
Do the company has established a big brand or in a monopoly business? – Another thing to check is a monopoly in business by the company. A monopoly business means higher profit margin and more returns. A company should have a preferably big brand name and high entry barrier.
Strong and Capable Management
A company should be in a safe hand. You should check for the honesty and capability of the management. Only strong management is not enough. Management should have a future goal and plan to achieve it. To find out this quality you need to ask the following question while analyzing a stock.
Do the company have a clear goal for the business in the future? – A company should be clear about goals and future business prospects. Honest management plays a crucial role here. You can get information about this by reading an annual report or going through management interviews.
In addition to the goal set by the management, you should also look that goals are realistic or not. A company should be able to demonstrate how they are going to achieve that.
You should also check if management has a proven track record and history of achieving past goals or not.
Strong Promoter Holdings
Strong promoter holding is the next important factor to check. Promoter means people that start, fund and operate a business.
A company with strong promoter holding indicates the trust of the founders in the business. A low promoter holding indicates promoter has less faith in the business and they have pulled out money from the business.
A promoter holding should be at least 50% or above. In a few cases, you may not find strong promoter holdings as holding is distributed to multiple holders including institution and public.
Now let’s try to look at quantitative factors of the stocks.
The stock should be sound fundamentally. To evaluate the fundamental of stocks you need to check the quantitative characteristics of the stock. You can do that by evaluating the financial statement and quarterly results of the business.
High Earning Growth
Earning growth is the first quantitative factor to consider. A company should have high earning growth. Earning growth is the annual growth rate of earning from investment. This factor provide valuable information such as how fast a company is growing.
One of the best way to know earning growth is via EPS (Earning per Share). EPS is calculated by dividing net profit by total number of shares. This shows how much company is earning against each share. EPS of stock should be higher.
One year EPS is not enough while evaluating. You should consider past three years EPS while evaluating stock.
High Net Profit Margin
High net profit margin is another quantitative factor for consideration. A company should be performing well and should have a high net profit margin. You can calculate Net Profit Margin by dividing net profit by total sales of the company. A multibagger stock should have a higher profit margin.
You should consider the past three years’ net profit margin while evaluating a stock.
Low Debt Level
Debt is bad for any company. It can destroy a business at any time. When you are evaluating stock you should look at the stock with low or nil debt level. A debt-free company is a very good candidate for multibagger.
You can get information about the debt level from the balance sheet of the company.
Free Cash Flow
Free cash flow is the next quantitative factor to consider. Free Cash Flow is total cash left with the company after making capital expenditures such as the purchase of plant, machinery, technology, etc.
Free cash flow can be used for business expansion, new product development, debt payment or dividend distribution. You can get information about free cash flow from the financial statement of the company. You need to subtract capital expenditures from operating cash flow to get this information.
A company should be generating free cash flow year on year. This is one of the factors that helps the stock to become a multibagger.