Reblog: A quick checklist when looking for multibaggers
In 14 points to keep in mind when buying small-cap stocks, I threw light on what one must look at specifically and diligently.
While, I am not undermining the importance that must be given to facets such as industry growth, company growth, return ratios, profitability, cash flows and debt, I would like to present a broader perspective too.
Experienced investors will not only scrutinise all of the above, but also look at potential trigger or what could provide a supportive growth environment.
Let’s look at some of them.
1. Next-Gen
Keep a track of when the next generation takes over. More often than not, the next-gen are educated from Ivy league institutes, work for renown investment banks/consultancies globally for a few years before heading back to join the family business in India. This is not just a formal transfer of responsibility, but the birthing of a culture that realizes the importance of clean corporate governance and the upside it gives to valuations.
You can see it evident during the recent past in some companies such as a leading tyre manufacturer, glassware producer and an iconic automobile player.
2. Entrepreneurs
Keep an eye out for entrepreneurs who take over a listed shell company or a very small operating company or a loss-making company. They buyout the existing promoters, make mandatory open offers to the public and once in control of the company, they come up with a strategy to turn it around.
This has recently been noticeable; a Harvard graduate taking over a forestry related company, a pipe company promoter taking over such companies to diversify in related fields.