Capital gains are the reason many of us will invest in the stock market. Sure, dividends are an added bonus, but ultimately we need to invest in growing businesses to be successful.
But it’s not as easy as it sounds and trying to identify tomorrow’s Commonwealth Bank of Australia (ASX: CBA) or Telstra Corporation Ltd (ASX: TLS) today requires us to take on a little extra risk. The risks come in a variety of types, severities and probabilities.
The trick is finding the companies which have managers who are adept at their roles, capable of outweighing the risk and unlocking the potential of their businesses. Here are three companies which I believe could be ready to grow revenues and profits significantly over the coming years, thus providing significant upside for their shareholders.
1. ADMEDUS FPO (ASX: AHZ) is a small-cap diversified biotechnology company. It was one of the ASX’s best performing stocks in 2013 because its flagship CardioCel technology passed a number of clinical hurdles and the company began marketing the regenerative product worldwide. I’ve owned the company for some time and have watched its stock price soar as high as $0.18 per share in November 2013, it opened this morning at $0.12.
However, I believe investors have significantly underestimated the value of this company, so much so I’ve contemplated buying more shares, on many occasions, despite it already returning huge gains. I’m not alone either. A number of research houses have target prices which are significantly higher than its current market price. It’s important to remember however that it is yet to make a profit (but it could be expected soon!) and should be treated as a high-risk investment.
2. Donaco International Ltd (ASX: DNA) is a hotel and casino operator with its flagship facility in Lao Cai, Vietnam. In the past few years management have been focused on undertaking a huge renovation to its Lao Cai International hotel, taking it from a 3-star 34-room hotel and casino to a 428-room 5-star resort and casino complex. The new Aristo International Hotel recently completed its soft opening. However, after a stellar run up in price in the first few months of 2014, shares have fallen back below $1.00.
One of the best ways to gauge if a fall in share price is warranted (i.e. long-term in nature) is to watch the reaction of a company’s senior managers. Recently Donaco’s share price fell from over $1.50 to below $1.00 amid a tech sell off and Chinese/Vietnamese tensions. Three managers, including its chairman, MD and a senior director added more shares to their personal collection. I’ve also been tempted on a number of occasions.
3. Nearmap Ltd (ASX: NEA) is a $186 million geospatial technology company. Think Google Maps but better. Customers come from a variety of industries including construction, mining, engineering and government. This is because it has a superior service which can be applied to a number of commercial applications. Its maps are updated frequently and provide extremely clear images.
Despite recently launching new services, reporting its maiden profit and piloting services in the U.S., the market sold down its stock in the recent tech sell off. Nearmap currently trades on a PE multiple of 59, but as expert stock picker and Motley Fool Co-Founder David Gardner points out here, investors should not focus on what a company has done but what it’s going to do. How it is going to evolve and grow over time. If Nearmap can successfully develop its business in the US, it won’t last long at its current price.
An even better buy today
Admedus, Donaco and Nearmap have all proven to be exceptional investments for those savvy enough to get in early in their growth cycle. For example Nearmap is currently 55 cents, just imagine buying it for 3 cents two years ago!
5 stocks under $5
We hear it over and over from investors, "I wish I had bought Altium or Afterpay when they were first recommended by The Motley Fool. I'd be sitting on a gold mine!" And it's true.
And while Altium and Afterpay have had a good run, we think these 5 other stocks are screaming buys. And you can buy them now for less than $5 a share!
*Extreme Opportunities returns as of June 5th 2020
Motley Fool Contributor Owen Raszkiewicz owns shares in Admedus and Donaco International.
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