Published: 05th July 2024

How to spot the next compounders early in the making?

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By: Value Research

Start early, gain more

If you had invested Rs 10,000 in Cera Sanitaryware 20 years ago, you would have been a crorepati today! But spotting the winners early is easier said than done.

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It’s difficult, but not impossible

We can still identify tomorrow's champions today by evaluating company life cycles and using it to find stocks that are in their foundation-building stage.

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How?

Cash flow patterns can help. For example, in the introductory stage, companies incur negative operating cash flows (CFO) but positive financing cash flows (CFF) due to raising debt.

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The ideal stage to spot young market prodigies

It’s the next growth stage. A company here begins generating positive CFO and making its presence felt. Since it’s hungry for growth, its CFF remains negative.

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Will growth suffice on its own? 

Growth companies are not enough, unless they are also building a unique competitive edge that can stand as a bulwark against peers. Simply put, find growth companies with moats!

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How to spot young moat stocks?

We have worked out a methodology to help you find solid moat stocks in their early growth stage. Our latest issue of Wealth Insight also packs 20 such Indian companies. To grab your copy, click the link below.

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