What Are Multi-bagger Stocks?

When you purchase a stock, you own a certain amount of ownership of the company. When the company grows, the value of your investment increases or decreases. It can be higher, which becomes your profit, or it can go lower, which becomes your loss.

Now in the case of multi-bagger stocks, the name itself suggests that these stocks are positive in aspect as they would bag more returns. The word multi-bagger means giving more than the expected returns in x multiples of the original value.

These stocks have a strong financial base but are undervalued as they are low in price, also known as the penny stocks. The catch with multi-bagger stocks is that there is a high-risk factor involved in whether they will give multi-bag returns or few bag returns; secondly, you cannot expect it to multi-bag the returns as soon as you invest, the returns will gradually increase and can take more than a year, thus making it a long term investment.

Your patience level for these stocks should be on the higher side, and your research should be on the level that if the stocks underperform, you can ascertain till when can it rise back, and you can recover the loss if any.

The word of caution with multibagger stock is that if the company goes through a major change or if the government's regulations change, which are not in the favour of the company, then the aspect of multi-bagger can become void, as these stocks won't perform as per your expected returns and can even incur losses.

In any scenario, investors should ensure that they don't invest all their money in one basket in hopes that they will get better results. The trading itself is unpredictable, and one does not want to incur losses in the futile hopes of higher returns.

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