I have a query in my mind that is bugging me since long time. I am not sure its important at all. During all these years i have a feeling stock in 2 digits has better chances to become multibagger compared to 3 digits or 4 digits. assuming all other variables same. that means growth, management quality, market cap etc
Stock A. Price 60. Market Cap 200 cr
Stock B. Price 600. Market Cap 200 cr
Stock C. Price 2000. Market Cap 200 cr
Among these 3, my prefernce is always A. I have a feeling with small price it attracts small inventors and also several investors. In this example A will have higher number of shares resulting in better liquidity and more volumes, so it goes up faster. apart from psychological favour towards the assumption small price means ‘cheap’ stock
Stock A. Price 60. Market Cap 20000 cr
Stock B. Price 600. Market Cap 800 cr
Stock C. Price 2000. Market Cap 200 cr
in this case the market cap is different. my understanding is very large market cap will hamper growth at some point (assuming the sector itself is now growing at same rate). so what would be a good ballpark number for market cap to identify multibaggers. In this example Stock C will have better chances ?
so in general, do the stock price and market cap have a bearing on the stock becoming multibagger (all other things being equal) ? if so what would be ideal figures ?
dont get anchored by price of stock. it has got nothing to it being multibagger.
More important in that aspect is the market cap in comparision to the opportunity size available.
There are some sectors where market cap usually dont matter bcos opportunity size is huge. e.g finance, banks, pharma, consumers, fmcg etc. Here also a company starting with a small market cap might have an advantage bcos the opportunity size is huge but important thing is
2). balance sheet
3.competitive advantages -or moats/presence of niches
One should not look at the stock price alone. Earnings and P/E ratio should also be taken into account. If there is no earnings visibility, then one will never get a multibagger whatever the price. Ultimately it all boils down to earnings over a period of time. If the stock price strays away from the earnings, sooner or later it will catch up with the earnings.
Another point to remember is that do not chase stocks with high P/E ratios. An extremely high P/E ratio is a handicap to a stock just like extra weight in the saddle is a handicap to a race horse says Peter Lynch.
When one says a stock has a high P/E ratio of say 50, it means that it will take 50 years to recover your investments if the company maintains its earnings at the same level year after year for 50 years. Is this possible in real life? It is anybody’s guess.
I agree with hitesh. But, I do struggle with the price issue. Lets say I have a fixed amount - 1L - and I have to choose between 2 companies e.g. Page and Cera. Now 1L gets me ~31 shares in Page while it gets me 250 shares of Cera.
I can do the math and see that the price really does not matter - if the price doubles, my initial investment doubles either way. I’m not thinking of dividends here.
But somehow, being able to buy less no. of shares of Page for 1L makes me feel ‘poorer’ and sends me towards Cera. Anybody else feel like this
I dont have that kind of feeling, since after dmat is introduced we hardly pay attention to lot size. however i have a different strange feeling. stock A at 50 rs can become 500 rs faster than stock B at 3000 becoming 30000 rs. all other parameters being equal. anyway i am yet to see a stock quoting at 30000 rs, at some point they need to dilute the equity.
thats an excellent video on PE illusion. very good explanation by rajiv. i am more interested in such simple videos that much ‘accounting’ jugglary. also i signed up for workshop on value investing by safal niveshak in hyderabad this weekend. anybody has any review ?
i always feel listening to a class room type structured teaching is much much better than hundreds of hours of reading. only reading we should be doing is the books by the gurus like buffet, lynch etc. other stuff, better watch video or audio than reading