The purpose of this blog post is to explain the concept of investing in the highest-return stocks. Though the sound of it looks nice, such stocks are often too volatile. Their price can gyrate between highs and lows too frequently. Hence, while researching stocks with high returns, it is essential to check the improvements in their fundamentals as well. For quick answers about high-return shares, check the FAQs.
I’ve written an algorithm that filters the highest-return stocks in the Indian stock market. It is not difficult to find stocks with high returns, so why write an algorithm for it? It is essential because relying only on past return numbers may lead to problems. How?
List of Highest Return Stock in India
Last Updated: 10-May-2024
| SL | Name | Price | Market Cap(Cr) | Return (1Y) | Return (3Y) | Return (5Y) | Return (3M) | GMR Score |
| 1 | MKVENTURES:[514238] | 2460.05 | 960.79 | 72.15 | 377.75 | 161.39 | 46.60 | 99.63 |
| 2 | Authum Inv:[539177] | 758.05 | 12605.64 | 250.71 | 181.54 | 220.83 | -10.30 | 99.56 |
| 3 | Tinna Rubb:[530475] | 1012.00 | 1733.50 | 294.85 | 285.39 | 120.35 | 47.51 | 99.49 |
| 4 | Magellanic:[538891] | 638.50 | 7462.72 | 211.92 | 244.55 | 144.22 | 0.33 | 99.41 |
| 5 | RAJRAYON:[530699] | 21.79 | 1217.82 | -56.21 | 362.68 | 158.17 | 1.87 | 99.34 |
Let me give you an example. There is a company called Sejal Glass listed in BSE in Year-2008. For the last 10 years, its stock price was in the single digits. It was a penny stock.
Twelve months back its share price was Rs.3.64, today the price is at Rs.425 levels. It has a CAGR growth rate of 11,597%. Rupees one lakh invested in this share would have become more than a Crore in 12 months.
But my algorithm gives this share a Score of Zero. Why? Opening the financial report of this company will tell the reasons.
Reasons
- The company has reported only losses in the last 5-Years.
- Its net worth is negative because all of its retained earnings are exhausted.
- The company is living dangerously in high debt. Neither its equity base nor earnings nor cash flow can support its debt load.
- The current ratio of the company is dangerously low. May lead to bankruptcy.
- The company’s cash flow is falling.
- The net sales have grown at 15% per annum but it is not sufficient to justify the exorbitant rise in share price.
So the question is, shall we buy such a poor-fundamental stock just because its share price is rising? A long-term investor like Warren Buffett would never do it.
Company Fundamentals Are More Important
People who are successful in the stock market are investors, not speculators. Who are investors? They are people who buy stocks of fundamentally strong companies and hold on to them for a very long time. Extended holding time helps them to take advantage of the power of compounding. So buying stocks and holding on to them for 10-15 years is the first trick. The second trick is to invest only in fundamentally strong companies.
But how to know if a stock is of a fundamentally strong company? It can be known through fundamental analysis. If you are interested in knowing how the analysis is done, I’ll request you to read my series of articles on fundamental analysis. For now, we’ll stay on the topic of highest return stocks.
As we saw in the example of Sejal Glass, the company’s fundamentals were weak, but still, its share price went up the roof. How? The promoter’s holdings in Sejal Glass have increased from 50% to 99% between Dec’21 and Feb’22. So the demand for the share was pumped up, hence the price rise.
To know more about how the stock price is determined, please read this article. It will give you a fair idea of the factors causing the share price to move up and down.
In the case of Sejal Glass, the price jump is caused by an increase in demand for its shares from the promoter’s side. Nevertheless, the fundamentals of the company remained weak. I’ve checked their last few quarters (till Dec’21) numbers. It was not encouraging.
The point is, it is important to further investigate shares that gave high returns in the past. Why? Because not all high-return shares have a profitable underlying business. We must avoid investing in loss-making or even less profitable companies.
How to Judge High Return Stocks?
In my stock screener, there is a list of stocks that gave the highest return in the last 10 years. But what is more interesting about this list is the consistency of returns yielded by these stocks. How to measure it? It is also the topic of discussion in this article.
Let me give you an example to highlight the utility of my stock screener and its scoring method. Suppose you were researching a stock XYZ for its past returns. You found its numbers as presented below.
XYZ had phenomenal periods in the last 1, 5, and 10-Years (in terms of share price rise). There is also a price correction of 26% in the last 3-months. Currently, its P/E ratio is also very low at 1.54 levels. What do you think, just by looking at these numbers, the stock looks ready to buy, right? But our stock screener gave it a “GMR score” of 15 out of 100. The low score points towards weak business.
For a screener theme, the GMR score is an algorithm that rates stocks based on the past returns it has generated for its investors. The higher the past returns, the better. Moreover, instead of focusing on absolute return numbers, we give scores based on the return trend
Along with the past returns, the screener also looks at the host of other stock data. A few prominent ones are listed below:
#1. Return on Capital Employed (ROCE)
XYZ posted negative ROCE numbers in the last 3, 5, and 10-Years. Read more about ROCE Formula. The algorithm includes the RoCE (Return on Capital Employed) numbers to calculate the GMR score. A positive and growing RoCE is an indicator of strong underlying fundamentals.
#2. Earning Per Share Growth (EPSG)
In the last 3, 5, and 10-Year periods, XYZ’s EPS growth is negative. In fact, in the last couple of years, its revenue is negligible. The algorithm considers the historical EPS growth numbers. Why use EPS Growth? There are some stocks whose price grows irrespective of falling profits (EPS). Factoring in EPS trends will filter out such companies.
#3. Price To Earnings Ratio (P/E)
No matter how high are the past returns posted by a stock, if currently it’s overvalued, it is not useful. How to judge if a stock is overvalued or undervalued? The easiest is through the PE ratio. Our algorithm gives low scores to stocks that trade at high PE multiples. Learn more about the PEG ratio which combines EPSG and PE to value stocks.
#4. Debt To Equity Ratio (D/E)
It is safe to invest in companies with low debt. How to quantify the debt level of a company? It can be done using the D/E ratio. To score a high return stock, our algorithm gives low scores to companies that have a D/E ratio above two. Extremely debt-ridden companies are altogether not scored no matter how high are their past returns. Why do we do so? Because high debt companies can become immediately risky when their business is not doing well. Know more about debt-free companies.
#5. Current Ratio
Even the best companies can fail due to insufficient cash. How do companies generate cash? Through their current assets. What is the use of current assets? Repayment of current liability and creating a surplus to manage future expenses (working capital). A company that can do this is called a reasonably liquid company. How to measure a company’s liquidity? The easiest way to do it is through the current ratio. Our algorithm gives low scores to companies whose current ratio is low.
To understand the concept of solvency and liquidity of a company, you can please read the articles provided in the link: working capital management, working capital use, and financial ratio analysis.
So, the GMR Score displayed in our stock screener for high return stocks is an amalgamation of the following parameters:
- Past returns,
- EPS growth,
- RoCE,
- P/E ratio,
- D/E ratio, and
- Current Ratio.
Conclusion
As an investor, we must also realize the most basic 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.
FAQs
When idea is to earn high returns, one must invest in stocks of a sector/industry that is growing. In today’s terms, we can say that Fintech, Artificial Intelligence, Data Analytics, Green Energy, Renewable Energy, Real Estate, Health Care, etc are Industries that are likely to grow fast. Stocks in these sectors/industries will be best for high returns. What we can do? Pick fundamentally strong stocks available at the right price and stay invested for the long term.
The profitable businesses bought at a fair price will invariably yield the highest returns in the long term. From an investor’s perspective, the most profitable stock will be one that is able to grow its revenue, profits, cash flow, and assets at a faster pace. Hence, instead of chasing returns, one must target high-growth stocks, high returns will follow as a by-product.
As on Dec’2022, Jyoti Resin’s share price rose from Rs.2 levels in Dec’2012 to Rs.1250 levels in Dec’2022. It is a growth rate of 80% per annum. Another company, GRM Overseas, grew from Rs.2 levels to Rs.370 levels in these 10 years. It is a growth rate of 60% per annum. Check more such stocks in our Stock Engine {app}.
If one’s holding time is at least 5 years or higher, which stocks one must consider for buying? There are two ways to look at it. First, from the point of view of assured returns. For such stocks, investors must consider blue chip stocks at a fair price. Second, from the point of view of high returns. For stocks, investors can consider low-cap penny stocks with strong business fundamentals.
I hope you’ve liked reading this article.
Have a happy investing
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42 Responses
Hello sir,
Thank you for this article as it gives good understanding on returns in multiple companies spread over different sectors.
Your website is very informative.
Every single stock that you have mentioned in this article has risen only after April 2020, before that each of them was lying dormant. Isn’t something fishy here?
Good observation. What do you think is fishy?
Hi,
Sir, I am Veeraragavan, (Male – 46 years Old – from chennai.)
I want to invest 1 lakh for 15 years. Pls suggest me, which stock will give good return for me.
Pls Suggest me.
Mobile No:9543664207
You will definitely investment in mutual fund quant mutual direct growth it’s my opinion
Where do you get the historical return data from?
Highest return share is Bajaj Finance.
This calculation is flawed. The share price calculation does not include share splits, bonus and dividends. TCS had 2-3 1:1 bonus in last 10 years and dividends are good too, which is not kept in mind while calculating returns.
need advise on investment in stks and mf worth 2 cr. also SIP in stks 1.2 lacs pm
I think you did not know about Alkalymine
Hello Sir, I have your analysis sheet and subscription
Do you think overall returns should be only major criteria for stock selection? we all are interested only in returns , so we should selected stocks only basis of returns ? right ? why so many ratios and other params need to check, this should be only criteria ?
I created one query on scrnner as below, do you think seleciton should be only on this query from Nifty 100 stocks , i am excluding penny stocks , only Nifty 500 from below query sorted on market cap
Return over 1month > 3 AND
Return over 3months > 10 AND
Return over 6months > 15 AND
Return over 1year > 20 AND
Return over 3years >15 AND
Return over 5years > 10
Returns that we see are past performances. The study of ratios can help us to judge the fundamentals of the business. If the fundamentals are good, the future will also be good.
Any stock I invest ? give me stock name good buying .I have 1 lake RS. Which stock buy?
Tcs
Wipro
Buy Page Industries. A consistent performer and wealth creator. Buy MRF, Reliance, and other blue chips. My rules of investing :
1. Choose a sector
2. Choose the leaders
3. Invest in leaders
4. Stay long term
5. Be clear about your objectives and goals
Hai
In ADANI Group which stock is best for Long time investment and high return ?
Thank you for this article as it gives good understanding on returns in multiple companies spread over different sectors.
I guess however the compounded average returns across year is better metric than simple average of individual returns.
Boss, away some articles. Since yesterday spent time in reading articles with rich info.
Thanks for the same.
New to market and this gives some basic idea and confidence to invest and gives some direction.
One error in your calculation. The three month return should be annualized before taking average. Nice post. Thanks
3M returns are indicated as absolute. It is not an error.
Thanks for your comment.
Sir can i go for adani enter ,transmission, and green for long time as i assume them as a multibagger in comng time
Hi Mani, Another nice article. I also suggest that you review the concept of CAGR which i believe is a much better parameter and indeed an essential one. See the below for a quick example :
year Value Annual % @6.55%
0 100,000
1 140,000 40.00 106,548
2 112,000 -20.00 113,526
3 120,960 8.00 120,960
Average Return 9.33
CAGR 6.55%
In the example the stock’s average return is 9.33% which seems better than a fixed deposit.
But in reality, an investor would have been better off investing in a risk free post office TD @6.9% and would have got better returns.
CAGR considers the annual capital addition on account of returns indirectly and is therefore a better measure to compare the returns as in the above example.
Regards
Sid
Yes, I agree with you. CAGR is a much better parameter, especially for long term holders.
Best,
Karan
CAGR is annualised rate. Here the period in question is 3 months.
Sir,
That means it’s better to invest in FD with 6.5% rather share market ?
Significance of Overall Return of Vinati.
This is a nice article. I thought i will replicate your Vinati Example. However your article has no date and which stock prices u have taken cannot be known. Hence your annualized % cannot be determined.
Can u pl 1) Let me know Vinati stock prices that u had considered for this article or 2) Pl explain how have u calculated annualized return?
Thanks for sharing the post. The way you narrated the post is good and understanding. After reading this post I learned some new things about Indian stocks. Please let me know for the upcoming posts.
hi sir
please suggest web sit from which we can get each year returns
Great piece of info. Keep on doing it.
Overall return %age is definitely a very good metric to measure the quality of a stock.Thanks for sharing this great post.
Sir,
Your website is very informative. But changing layout frequently annoy very much. Please do something for this.
Thanks for your feedback.
Nice sir
I think out of the 5 stocks you mentioned, Bajaj and Relaxo both looks good for investment.
I came across your blog and your analysis is really informative.
I am wondering is there any way to identify such stocks in initial stages like within 3 years time span. anyone who has invested on these stocks around 2011 would have made great money.
Is there any common characteristics between them in early stages ?
Thanks for your comment.
Identification of such growth stocks is not easy. There are several limitation with we common men. The biggest is “lack of data base”. What we have, is websites like moneycontrol, Enonomic Times etc which provides with fair-enough info. So what we can do? One way to do it is to keep track of its Profits as explained in this blog post. Potential such stocks with have a low PEG ratio.
Thanks for the reply. Going through all your blogs one by one and appreciate your efforts to explain complex things in such a way that it becomes easy to understand and keeps user’s interest intact.
Just curious about , what your stock analysis tool is suggesting if we feed 2008 – 2011/2012 data of these stocks. Planning to buy it and bit curious what it has to say for such scenarios.
Thanks in Advance 🙂
Hello, Thanks for posting your comment. The worksheet tries to estimate the “intrinsic value” of stocks. To know more about it, you can check the product page please.
Nice
Hello Sir,
I have a question. As you have said “Hindustan Unilever Ltd. – 19.27% CAGR-10Y”, is this return as mentioned here do we get each year i.e., 1st year, 2nd till 10th?
Thank you
CAGR is “average” growth rate achieved over a period of 10 years.