|SL||Name||Price (Rs.)||Return (3M) %||Return (1Y) %||Return (5Y) %||Return (10Y) %||GMR Score|
|6||C G-V A K Soft||149.9||13.09||98.94||36.19||33.98||40.24|
How their consistency of returns is measured? First, we will review this methodology, and then we will discuss the ‘highest return stocks’.
Imagine that there is an investor who bought a stock of XYZ company, 10 years back. He has held on to this stock till today.
During this holding time, he has measured its returns in the following time horizons (like last 10 years, last 5 years etc):
- 10 Years (A% say).
- 5 Years (B% say).
- 3 Years (C% say).
- 1 Year (D% say).
- 3 months (E% say).
Suppose, the stock XYZ has given positive returns in all the above periods. Moreover, to quantify the magnitude of “overall return”, the person has used the following formula:
Overall Return = (A+B+C+D+E) / 5
When the investor calculated the overall return of his stock XYZ as per the above formula, the value came out to be 60.3%.
Now, to understand the significance of a the overall return value of 60.3%, lets take few examples.
It will help us to see the list of highest return stocks, in a perspective of return generated by these example stocks.
Example 1: Overall Return of TCS
TCS is number two stock of Indian stock market in terms of market capitalization (M.Cap = Rs.8.08 Lakh Crore). It is one of those stocks which has ensured great shareholders returns in last 10 years.
But in terms of our metric of ‘overall return’, how TCS has performed? Allow me to present you the return data of TCS, and then we will calculate its “Overall Return”.
- 10 Years (29.84% p.a.).
- 5 Years (14.05% p.a.).
- 3 Years (19.83% p.a.).
- 1 Year (22.46% p.a.).
- months (5.03% p.a.).
Overall Return (TCS) = (29.84+14.05+19.83+22.46+5.03) / 5 = 18.24%
Compare the overall return of TCS (18.24%) with that of XYZ (60.3%). Inspite of TCS being one of best stocks of Indian stock market, still its overall return is not even close to our theoretical stock XYZ.
Example 2: Overall Return of Hindustan Zinc
Hindustan Zinc is again one of the prime stocks of Indian stock market. Being in the metal space (non ferrous), its nature of business is very capital intensive. Inspite of this fact, this company has managed to remain debt free for a prolonged period of time.
What attracts attention towards Hindustan Zinc is also its huge bottom line (Rs.9,200 Crore). Being in Non-Ferrous sector, its PAT Margin and ROE stands at 34.7% and 27.8% respectively. These numbers make it one of the most profitable companies in metal sector.
How Hindustan Zinc has performed in terms of our metric of “overall return”?
- 10 Years (18.92% p.a.).
- 5 Years (16.66% p.a.).
- 3 Years (16.62% p.a.).
- 1 Year (-11.44% p.a.).
- 3 months (7.43% p.a.).
Overall Return (H.Zinc) = (18.92+16.66+16.62-11.44+7.43) / 5 = 9.63%
Compare the overall return of Hind. Zinc (9.63%) with that of XYZ (60.3%). No matter how profitable is the business of Hindustan Zinc, it still could not give a return like XYZ.
Example 3: Overall Return of Asian Paints
In India, Asian Paints is the biggest paint manufacturer. In TTM basis, total revenue of Asian Paints stands at Rs.19,000 Crore. The closest rival of Asian Paints is Berger Paints. It TTM revenue is Rs.6,500 Crore.
Even in terms of Profitability, Asian paints is way ahead of its closest rival Berger. PAT Margin and ROE of Asian Paints is 13% and 24% respectively. PAT Margin and ROE of Berger is 9% and 20% respectively.
Let’s see how Asian Paints has performed in terms of our metric of “overall return”?
- 10 Years (32.05% p.a.).
- 5 Years (22.95% p.a.).
- 3 Years (18.16% p.a.).
- In last 1 Year (19.21% p.a.).
- In last 3 months (-1.28% p.a.).
Overall Return (A.Paints) = (32.05+22.95+18.16+19.21-1.28) / 5 = 18.21%
Compare the overall return of Asian Paints (18.21%) with that of XYZ (60.3%). Asian Paints almost operates like semi-monopoly business in India, but still its overall return could not match XYZ.
Significance of Overall Return
Why we should give importance to the overall return? Because a stock which is showing a high overall returns had provided more buy opportunities (with potential to give high returns) to their investors. How?
Let’s take example of XYZ to get a feel of the significance of overall returns. But before that, allow me to disclose the real name of XYZ. It is “Vinati Organics”.
This is a mid cap stock with market capitalization of Rs.9,700 Crore. It’s overall return is as below:
- 10 Years (58.97% p.a.).
- 5 Years (46.16% p.a.).
- 3 Years (60.10% p.a.).
- In last 1 Year (116.05% p.a.).
- In last 3 months (20.41% p.a.).
Overall Return (Vinati) = (58.97+46.16+60.10+116.05+20.41) / 5 = 60.3%
How high overall return of Vinati Organics makes it a good stock for investing?
- 10 Years: Suppose a person bought Vinati Organics 10 years back. If he sells it today, his annualised return will be 58.97% p.a.
- 5 Years: Similarly, suppose a person bought Vinati Organics 5 years back. If he sells it today, his annualised return still will be 46.16% p.a.
- 3 Years: Suppose a person bought Vinati Organics 3 years back. If he sells it today, his annualised return still will be 60.10% p.a.
- 1 Year: Similarly, Suppose a person bought Vinati Organics 1 year back. If he sells it today, his annualised return will be a whopping 116.05% p.a.
- 3 Months: Suppose a person bought Vinati Organics only 3 months back. If he sells it today, his annualised return still will be 20.41% p.a.
So generally speaking, Vinati Organics has given at least 5 great opportunities to its investors to buy its stocks. This is what made stocks like Vinati a great buy for its investors.
Vinati Organics has not been the only stock which has given such stellar returns in the past. There are more such stocks.
Moreover, Vinati Organics has been a stock operating in Mid Cap space. There are also large cap stock which has given similar returns. Will it not be fantastic to get our hands on such a stock list? We will see this list of high return stocks now…
How an investor should treat these stocks?
I will tell you how I do it. I keep a list of such stock in my special watchlist. Whenever market price of these stocks corrects itself by more than 5-6%, I make a point to do its stock analysis.
How I analyze such stocks? By using my stock analysis worksheet.
Why stock analysis is essential? To reconfirm that whether the business fundamentals of the stock is strong enough or not.