Valuation factors of multi-bagger companies compared to the market

Abstract

Companies that have increased their value by over ten times in a fifteen-year period are considered multi-bagger companies. Martelli’s (2017) article brought into question the validity of the metrics for identifying multi-bagger companies and whether the methods used for monitoring their performance are valid. The objectives of this paper were to evaluate, firstly, whether the metrics proposed by Martelli for identifying multi-bagger companies, using a value investment strategy, were valid, and secondly, whether the methods for performance monitoring of multi bagger companies were valid. These evaluations were performed by analysing whether the multi-bagger companies all had the same identifying metrics at the start of a defined period. The methodology included evaluating past data (archival research) to assess the multi-bagger companies. This study found that these selection metrics/styles for valuation of the companies were valid for one multi-bagger company and not the other nineteen in the sample. The performance measures were found to be valid in the Basic Materials, Industrial, Healthcare, and Technology industries, and not in the other industries. Implications of these findings for investors are that either multi-bagger companies may not epitomise value investment strategies, or that multi-bagger companies cannot accurately be identified using the value investment strategy.