Multibagger stocks is a popular term used by investors to describe a return of at least 100%. For example, if a stock doubles in price, it is an increase of 100% or a 2-bagger. If a stock increases by ten times or 1,000% it is called a ten-bagger. Whatever percentage the stock price rises by, is the number of ‘bags’ it holds.
Are Multibagger Stocks the Same as Bag Holding Stocks?
This isn’t to be confused with the other popular investing term ‘bag holder’.
This term refers to an investor holding a position in a stock that has since decreased in price.
I can see why this would be confusing, but it is all within the context of how the phrase is used.
As an investor, you want to be investing in multibagger stocks and not become a bag holder of a stock.
Where did the term multibagger come from? It was first coined by famous investor Peter Lynch in his book One Up on Wall Street.
The term multibagger actually comes from a reference that Lynch made to baseball. In baseball, the bases are also called bags, and a double or triple is a multi-bag hit. It’s not a perfect metaphor, but you get the picture.
How Do You Find Multibagger Stocks?
A bit of luck and high conviction on great companies is a sure way to find multibagger stocks. They aren’t always easy to find: if they were then we’d all be rich wouldn’t we?
The most important element with multibagger stocks is time. Yes, for the most part owning multibagger stocks is a long-term investing strategy. Of course, you can always hit a short-term double on a stock price, but usually, that includes more luck than anything. Here are some things to look for in potential multibagger stocks.
This doesn’t necessarily read as a low-priced stock. An undervalued stock means how the stock is priced compared to its rivals within the same sector or other multiples like price to earnings or price to sales.
Whatever metric you use to value your stocks, undervalued ones generally have the highest chance of doubling or more.
Being a low-priced stock does not usually matter as much, especially if the underlying business isn’t strong. Psychologically, it might feel like a $5 stock can hit $10 faster than a $100 stock can reach $200. But as we know, this isn’t always the case.
Everything is relative with stock prices so you’ll need to dive deeper into how that stock is actually valued.
I don’t mean to say that if the stock traded at a certain price before, it will again. Remember that past performance is not always indicative of future performance when it comes to stocks.
This is a common fallacy amongst newer investors and should never be the only reason you buy a stock. When I say past performance I mean what has the stock done lately.
If the stock has just completed a double in price over the past three years, it might be safe to assume it won’t double again, at least right away. It helps to look at stocks that have been trading in a range for a period of time and are waiting to make that next move higher. Using technical analysis along with support and resistance levels can help identify which stocks are in for a big move.
Future Growth Potential
If a company can’t grow anymore, then chances are the stock won’t be doubling anytime soon.
You have to know the company you are investing in to understand the chances of a potential multibag.
Sectors matter as well. Odds are if you’re looking at financials or consumer discretionary, you won’t find many multibaggers.
High growth sectors like tech are where multibaggers reside. But be warned that not all tech stocks will be multibaggers. This is where looking into the company’s fundamentals comes in handy.
If the company has been steadily growing its earnings and is still innovating and releasing new products, then the future growth is there. But if the company only has one product with lots of competition, you might want to look elsewhere.
Time in the Market
Remember the old sayings: ‘time in the market beats timing the market’. Like I already said, multibaggers take time to develop. Sometimes they can take several years to reach two or three-bagger status. This is why hunting for multibagger stocks is a long-term investing strategy and not usually one for day traders.
For large-cap companies, it usually takes three to five years for any sort of significant price action. Patience is a virtue but when you master it in the stock market you are handsomely rewarded. Selling stocks too early can prevent you from ever having multibaggers in your portfolio!
What Are Some Recent Multibagger Stocks?
For these stocks, I am using a time horizon of the last five years or less. All of these stocks show that if you choose the right company and have patience, you can see incredible gains on your initial investment.
NVIDIA (NASDAQ: NVDA)
It seemed like for years NVIDIA was just a graphics card company and its stock was a slow gainer. We all knew the potential this company had but it was taking a while to formulate those returns.
But did you realize that over the past five years, NVIDIA shares have returned 890%? That is nearly a nine-bagger, with most of the growth coming from 2020 and onwards.
Tesla (NASDAQ: TSLA)
One of the most popular multibagger stocks on the markets. Tesla saw an incredible run from 2019 onwards. Over the past five years, shares of Tesla have returned 1,630%, good enough for a sixteen-bagger.
The stock has been under some pressure in 2022, but there is no denying the potential Tesla has. We might not see another sixteen-bagger over the next five years, but I wouldn’t be surprised if we saw Tesla double or triple once again in the next couple of years.
Shopify (NYSE: SHOP)
Another stock that has been a runaway train, Shopify came out of nowhere to surprise us all. The Canadian eCommerce giant has also seen a correction this year, but that’s just what happens.
High growth companies often see their valuations get ahead of them, and nearly always see a cooling-off period. Over the past five years, Shopify has returned 1,051% and is a true ten-bagger stock.
Apple (NASDAQ: AAPL)
It’s hard to have a stock list without the world’s most valuable company. Apple hasn’t really provided the recent gains that these other stocks have.
But over time, Apple’s returns have been truly breathtaking. The stock has split five times since 1987, which always masks how well the stock has actually done historically.
In the past five years, Apple has returned 372% or nearly a four-bagger. What’s incredible for Apple is that it is doing this as a company with a trillion-dollar market cap. If we zoom out more, Apple has returned an unimaginable 235,785% since it first started trading.
If you want to find some true multibaggers these days, you need to check out the cryptocurrency industry. The growth of some of these tokens has been staggering and the industry is only really in its infancy still.
Bitcoin, the leading cryptocurrency, has returned 3,340% over the past five years. That’s a 33-bagger in five years. Since its inception in 2009, Bitcoin has returned 12,511% or a 121-bagger in just thirteen years.
The second-largest crypto, Ethereum, is even more impressive. In the past five years, it has returned 12,598% and since its inception in 2015, Ethereum has returned 23,465%.
Don’t get me started on meme coins like Shiba Inu or DogeCoin either. The gains of those coins surpass even Bitcoin and Ethereum!
What Are the Next Multibagger Stocks?
If only picking multibagger stocks were so easy. To find the next multibagger stocks, you need to be diligent with your research. Find high growth companies that have great management teams and a competitive advantage over their peers.
Look for sectors that are emerging and haven’t already run up to all-time high prices. In those sectors, find the undervalued performers that have just as much potential for future growth.
But most importantly, once you have found your high conviction stocks you must have patience. We always hear stories about people who sold Apple at $10 or Amazon at $50 because the stock was taking too long to return gains. What about those that sold Bitcoin once it hit $100? How do they feel now?
True multibagger gains are made over time, so even if the stock doesn’t go up right away, hold on to it. It is these long-term returns that we saw above that make finding the right multibagger stocks worth it in the long-run.