Check this list of stocks that gave the highest return in the last 10-20 years. But what is interesting about this list is the consistency of returns yielded by these stocks. How to measure it? It is also the topic of discussion of this article.
First, we will review this methodology, and then we will discuss the highest return stocks. Check this flowchart for the parameters and interdependencies.
Suppose an investor is holding a stock named XYZ for the past 10-Years. During this holding time, he has measured its returns (CAGR) in the following time horizons:
From the data, it is clear that in the last 1-Yr the stock has given a good return of 51.7%. But in the remaining periods, its returns are negative. How we can make meaning of such return numbers? It is confusing, right?
But suppose I express these numbers in a different way. If a score is used for the expression of its performance, it will be better. Right? Say, a score of 21 out of 100, will it make more sense. Right?
It is what is done by our stock screener. It gives GMR Scores (out of 100) to the stocks based on their past return numbers. A score of 100 is the best score, and zero is the lowest. Read more about the GMR score for high return stocks.
Suggested Reading: The Concept of Multibagger Stocks.
Highest Return Stocks in India [Updated 20-Nov-2021]
|SL||Name||Price (Rs.)||Return (3M) %||Return (1Y) %||Return (5Y) %||Return (10Y) %||GMR Score|
GMR Score For High Return Stocks
What is a GMR Score? It is an algorithm that rates stocks based on the past returns it has generated for its investors. The higher are the past returns, the better. Instead of focusing on absolute return numbers, we give scores based on the return trend.
The algorithm also considers the historical EPS growth numbers. Why use EPS Growth? There are some stocks whose price grows irrespective of their weak business fundamentals. Factoring in EPS trends will filter out such companies. It is a strong indicator of the business health of a company. A growing EPS trend is what we would like to see in our stocks.
The algorithm also includes the RoCE (Return on Capital Employed) numbers to calculate the GMR score. Like the EPS trend, a positive and growing RoCE is a strong indicator for the stock’s underlying fundamentals.
So, the GMR Score is an amalgamation of past returns, historical EPS growth, and historical RoCE.
Growth & Profitability, Yields Returns
To judge the past returns of stocks, I’ve merged the concept of growth (EPSG) and profitability (RoCE). Looking alone at the capital appreciation number is not as effective. Why? A profitable business whose earnings are also growing is most poised to see future price appreciation.
Likewise, a stock with low profitability and negative profits cannot continue to grow its share price in times to come.
Hence it is essential to see growth and profitability together to judge the quality of the highest return stocks.
As an investor, we must also realize the factors that make a business profitable. A profitable business, as a result, will grow fast and will yield higher returns. The most fundamental thing about any business is its business model and its management team. Once these two factors are in place, the next-essential thing about the company is capital.
These three ingredients are the basics of any company. Together it gives quality to a business. Two fundamental indicators highlighting the quality of a company are its profitability and growth numbers.
All factors that include the business model, management’s quality, capital structure, profitability, and growth ensure future price appreciation of a stock.
So, in our endeavor to find a high return share, looking only at the price is insufficient. Why? Because business fundamentals drive a stock price high or low. How to measure the business fundamentals of a company? It is what you’ve read above in this article.