This stock has risen 30x in 3 years. How can you find the next one?

February 5, 2026

Wes Gray, the CEO of Alpha Architect, an asset management firm, wrote a great piece in 2016 called ‘Even God would be fired as an active investor’.

His point was that if you had the divine foresight to build a portfolio of stocks that could outperform the markets over the next five years, you would enjoy stellar returns accompanied by heartbreaking price drops.

In other words, the losses in the meantime could be so great that a client who hired you as an active manager could fire you.

Gray’s opinion was based on his analysis of the components of the S&P 500 index from 1927 to 2016.

Gray’s first portfolio was built on 1^st January 1927, rebalanced every five years and weighted by market capitalization. Over the entire period, the portfolio of top 50 stocks generated an annualized return three times that of the S&P 500.

That’s great, but here’s the catch.

The worst drawdown for the portfolio was 76% (August 1929 to May 1932), and there were five drawdowns of 30% or more.

In other words, even the perfect portfolio tests the resolve of those who own it.

The declines in individual stocks are much larger than those in diversified portfolios such as the S&P 500 or the BSE 500.

But it’s easy to forget that when you look at the spectacular returns of some stocks such as Mazagon Dock Shipbuilders.

The stock has delivered a mouthwatering 30x return in just three years.

Assuming one had invested just 10% of the portfolio in stocks like Mazagon Dock, and expected a total compound annual return of 12% on the total portfolio, the individual stock alone could have multiplied the total return 5x (62%).

Impact of supernormal gains

But on the other hand, placing a significant weight on such a stock can have disastrous consequences during price falls. The decline in individual stocks could drag the overall portfolio into negative territory.

Impact of withdrawal

Are the signs of such a stock always visible?

Well, Mazagon Dock was listed in 2020. Shares had doubled by the end of 2022 as the defense sector saw several policy changes and order books rose.

In December 2023, Mazagon Dock took delivery of an order worth Rs 16 billion from the Ministry of Defense. This was for the procurement of six next generation offshore patrol vessels for the Indian Coast Guard. These multi-purpose ships had to be designed, developed and manufactured domestically.

Further, it received an order worth Rs 11.5 billion from ONGC for the replacement of a pipeline.

The company was also in talks with Sri Lanka, Brazil and South America for exports and will work with the private sector in emerging technologies.

Moreover, it had signed a Memorandum of Understanding (MOU) with Germany’s Thyssenkrupp to participate in an Indian Navy submarine tender worth around $5.2 billion.

That’s when the StockSelect team began to take a closer look at the company.

We noted that Mazagon Dock had the necessary skilled manpower, including engineers and technicians, to take on the production of additional submarines.

In addition, submarines have a long gestation period (almost 8 years), so the benefits are evenly distributed. There was a need for more clarity on the bidding process and on the actual number of submarines MDL could ultimately build.

Furthermore, the company expected an additional revenue stream from the Ship Repair Agreement (SRA) with the US government. There are only two shipyards in the country, including Mazagon Dock, that have signed an SRA, the other being Larsen & Toubro (L&T).

MDL’s order book stood at Rs 375 billion as of September 2023. Its order book size was almost 1.7 times that of its nearest rival Cochin Shipyard.

Mazagon Dock Shipbuilders was then also ahead of Cochin Shipyard in terms of profitability. The main reason was the company’s diversified revenue profile, which includes shipbuilding, spare parts sales and ship repair activities.

Additionally, the company used artificial intelligence (AI) for quality control, which can significantly reduce man-hours and also lead to higher efficiency.

So yes, Mazagon Dock shares had plenty of visibility in 2023. But no one could have predicted that the company will leverage India’s focus on naval defense so successfully.

In FY26, the company expects its order book to reach Rs 1.2 trillion. The order book has therefore grown 3.5x in three years.

And the company is well prepared to execute its order book in a timely manner and also focus on alternative revenue sources.

However, it would be a disaster to assume that such multibagger stocks could never decline in value and never negatively impact a portfolio’s performance.

It is important to recognize that stocks like Mazagon Dock have picked up a fair share of the market premium due to the lack of competition with private sector players. As the defense sector opens up to the private sector, it could become increasingly difficult for PSU defense stocks to win the largest orders.

Also, the shipbuilding industry could see significant changes due to policy and geopolitical issues.

So don’t be enchanted by the 30x returns of stocks like Mazagon Dock. Rather, consider the risks that an overweight position in such stocks may bring to your portfolio.

Kind regards,

Tanushree Banerjee
Editor, StockSelect
Equitymaster Research Private Limited (formerly Equitymaster Agora Research Private Limited) (Research Analyst)