I would like to present a simplified step-by-step guide to fundamental analysis for stock investing.
1. Understand the Company’s Business
✅ What to Check
- Core business model (e.g., Tata Motors = automobiles, Asian Paints = paints).
- Revenue sources (domestic vs. exports, product segments).
- Management reputation (e.g., Ratan Tata vs. a new startup founder).
Example
If analyzing Reliance Industries, note its diversification (oil, telecom, retail).
2. Sector & Industry Analysis
✅ What to Check
- Sector Growth: Is the industry booming? (e.g., EV sector in 2023 vs. chemicals in 2020).
- Market Position: Is the company a leader, challenger, or niche player?
- Peer Comparison: Compare metrics like revenue, profit margins, and debt with competitors.
Work for you folks find which is good
Compare HDFC Bank with ICICI Bank for ROE, NPA ratios, and growth.
3. Financial Health Check
✅ Key Metrics
- Revenue Growth:
- QoQ (Quarter-on-Quarter): Look for +25%+.
- YoY (Year-on-Year): Aim for +30%+.
- Profit Growth
- Net Profit: Consistent growth (e.g., +30% YoY).
- EPS (Earnings Per Share): Doubling/Tripling = 🚀.
- Margins:
- Operating Margin > 15% (stable or rising).
- Net Profit Margin > 10%.
- Debt:
- Debt-to-Equity Ratio < 1 (lower = safer).
4. Identify Multibagger Potential
✅ Spot Blockbuster Results:
- Sales/Net Profit Growth:
- 15–25% → OK ✅
- 25–35% → Good 🌟
- 35–50% → Excellent 🔥
- 50%+ → Blockbuster 💥 (e.g., Tata Power in 2021 solar boom).
- Look for 2–3 consecutive quarters of blockbuster results.
Pro Tip
Stocks that hold steady or rise in a bear market (e.g., ITC during COVID) often become multibaggers.
5. Red Flags to Avoid
🚩 Warning Signs
- Declining revenue/profit for 2+ quarters.
- Rising debt with falling margins.
- Frequent "one-time losses" in financial statements.
- Promoter pledging shares (>25% = risky).
6. Practical Checklist
📋 Before Investing
1. Business model clear?
2. Sector in growth phase?
3. Revenue + profit rising QoQ/YoY?
4. Margins stable/improving?
5. Debt under control?
6. Peer comparison.
Tools: Use Screener.in
7. Example
Stock: Tata Elxsi (2020–2022)
- Sector: IT/Design Services (booming post-COVID).
- Revenue Growth: +35% YoY.
- Net Profit: +50% YoY.
- Debt: Zero.
- Result: Stock rose 500%+ in 2 years.
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Key Takeaway
- Bull markets rotate sectors: 2020 (chemicals), 2021 (IT), 2023 (defense).
- Combine Fundamentals + Technicals: Use fundamentals to pick stocks, technicals to time entries.
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Another example of fundamental analysis leading to a multibagger stock
Dixon Technologies (2020–2023)
Sector: Electronics Manufacturing (PLI Scheme-Driven Growth)
Why Dixon?
1. Sector Tailwinds
- Indian government’s PLI (Production-Linked Incentive) scheme boosted domestic electronics manufacturing.
- Surge in demand for TVs, smartphones, and IoT devices.
2. Business Model:
- Contract manufacturing for giants like Samsung, Xiaomi, and Philips.
- Diversified into new segments (LED lighting, medical devices).
3. Financial Health
- Revenue Growth:
- FY21: ₹7,200 crore | FY23: ₹12,500 crore (+73% CAGR).
- Net Profit Growth:
- FY21: ₹318 crore | FY23: ₹850 crore (+167% CAGR).
- Margins:
- Operating Margin improved from 4.5% (2020) to 6.5% (2023).
- Debt: Debt-to-Equity Ratio < 0.5 (low risk).
4. Stock Performance:
- Share price rose from ₹2,000 (2020) to ₹6,300 (2023) – a 215% return in 3 years.
Key Fundamental Checks Applied:
1. Sector Analysis: Capitalized on PLI-driven electronics boom.
2. Revenue & Profit Growth: Consistent 30%+ YoY growth for 8 quarters.
3. Margins & Debt: Improving profitability + low debt.
4. Peer Comparison: Outperformed competitors like Amber Enterprises.
What Worked Here
- Policy Advantage: PLI scheme reduced import dependency.
- Scalability: Expanded capacity to meet global demand.
- Blockbuster Results: 3 consecutive years of 50%+ PAT growth.
Red Flags They Overcame
- Initial supply chain disruptions during COVID.
- Rising raw material costs (managed via economies of scale).
Formula of success
- Sector + Policy + Fundamentals = Multibagger.
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