(14) Structural Changes In Management
It is one of the most important criteria to find would-be multibagger stocks. Structural changes are those major changes within an organization that typically affects its day-to-day functioning.
These changes may occur due to a number of reasons in response to internal or external factors.
Some of the main reasons that may create the need for structural changes within an organization include mergers or acquisitions by a fundamentally strong firm, joint-venture with a well-known brand, business expansion, introducing new technologies or product lines, transition from a start-up to a scale-up company, raising capital, improving cash flow or profitability, eliminating job duplication, inheritance from father to son, changing market conditions, joining of a professional team on top, policy changes & many more.
Structural changes in management arising due to any of the above reasons are sufficient enough to make even a lazy stock into a great stock. In such once in a lifetime situation, multiple returns are almost guaranteed.
Stock analysts, stock advisors & smart investors are often looking for such critical changes to initiate bargain hunting in a potential multibagger.
(15) Stock Price To Book Value (P/BV)
It is one of the most common criteria to find would-be multibagger stocks. Stock trading at low price in relation to book value or low P/BV ratio is most likely to generate super returns.
It is because such a stock should increase at least up to its real book value in the long term. Book value is the shareholder’s equity arrived by subtracting current liabilities & debt from total assets. However, a stock may also trade below its book value during difficult times or adverse business scenario.
Investors should be wise enough to identify the true reasons behind this availability of a stock at a discounted rate. For example, if those difficulties are temporary in nature then the stock is likely to regain its lost value quickly on return of favorable conditions.
On the other hand, if those difficulties are permanent in nature then the stock is unlikely to regain its lost value even after a long time. Investors should stay away from such value traps.
However, finding “true” book value is not an easy task. Investors need to be extra-vigilant while investigating book value of any company.
It is because sometimes book values as stated on balance sheet can be terribly inaccurate. For example, real estate values can fluctuate wildly from the time of purchase.
Similarly, intangible assets such as patents, goodwill & trademarks may carry some value, but they are not worth much unless these assets can be sold out at their accounting value.
Thus, anything that can affect book value of a company must be accounted before coming to any conclusion.
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