The key to multibagger stocks is the "Product Mix Change" mental model. Companies use cash flow from their stable, low-margin 'cash cow' segment to fund a gradual shift toward newer, higher-ROE, value-added products. This process significantly enhances the competitive advantage and margin profile, as demonstrated by examples like Sansera, JM Financial, and Acutaas.
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Another mental model is: when company changes its business direction completely.
Example: Sarda energy.
Earlier company was making money steel products and ferro alloys. Cash flows were volatile.
Now, they are making money from power generation. Cash flows became stable.
whenever cashflows goes from volatile to consistent, PE expansion happens. Same is happening with the company.
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