As investors, we are always on the lookout for goldmines. We all want to find companies that can become multibaggers. Here is where Ian Cassel's investment strategy comes in handy.
Popularly known as the 'micro-cap mogul', Cassel shared his approach to identifying potential multibaggers in a recent podcast. Termed 'lightning in a bottle', his strategy looks at three key features that can make a micro or small-cap company a probable multibagger: i) consistent profitability, ii) ability to generate cash flows and iii) high liquidity. You can read more about the podcast here.
Cassel also emphasises the importance of high promoter holdings. The higher the promoters' holding, the more their interests will be aligned with that of the business.
Last but not least, is for a micro- or small-cap company to have a low float. Once a company starts performing well, investors will likely rush to purchase its stocks. In that case, a low float or limited supply of shares can help propel the stock price.
Does Cassel's approach apply to Indian markets?
We decided to test whether Cassel's strategy works in the Indian markets or not. Using our Stock Screener tool, we spotted 22 companies that show promise of consistent profitability, positive cash flows and high liquidity based on the below filters:
- Market cap between Rs 200-Rs 1,500 crore
- Annual revenue growth exceeding 12 per cent in the previous three years
- Annual PAT (profit after tax) growth exceeding 8 per cent in the last three years
- Positive FCF (free cash flow) in the previous three years
- Median ROE (return on equity) exceeding 15 per cent in last three years
- Promoter stake higher than 60 per cent
But, keep in mind...
There is no guarantee these 22 companies will go on to become multibaggers. Only time will tell. Even current growth and market leadership are not guarantors of future growth.
Investing in micro- and small-cap stocks is always riskier, owing to their smaller size and lack of proven track record. As a result, their share price growth also takes a hit. Which is why Cassel stresses on the importance of monitoring micro-cap portfolios. It is better for readers to consider this a starting point to find good investment opportunities.
Also read: Get started with your research using our stock screener
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