It’s easy to name a few companies that have the potential to see their share prices double, triple, or do even better. The real challenge is to find companies that could drive impressive returns, without too much risk.
The name of the game is to find investments that have an asymmetric risk and return profile. That means you’re looking for companies that have a solid chance of extreme growth but are quite unlikely to fail completely, even if that is a possibility.
One such company is Analytica Limited (ASX: ALT), a medical device maker that is expected to launch its product in Australia later this calendar year. The company has seen its share price rise over 10% in the last few days on the back of a positive market update and a broker report, albeit one paid for in part by the company.
Analytica is attempting to sell the PeriCoach, a device that is designed to assist with the strengthening of the pelvic floor muscle, because a weak or damaged pelvic floor muscle is the main cause for urinary incontinence in older women. Personally, my view is that it would be very difficult to market such a device, but a phone survey commissioned by the company suggested a decent proportion of women would buy the product, which measures their pelvic floor muscle strength, and gives feedback via a smart phone.
While the potential market for the PeriCoach is enormous, Analytica will face a multitude of challenges along the way and may require more capital at some point, so I’ve only taken a very small position. I wonder whether baby boomer women will use the device, or if they would prefer incontinence pads, or to exercise without electronic feedback, which is said to motivate patients.
One concern is that smart phone usage is less prevalent amongst older generations, although one positive is that smart phones are increasingly common across all generations. I find Analytica hard to value and I would recommend interested investors wait until the excitement dies down before considering a purchase.
Another interesting speculative stock, Mint Wireless Limited (ASX:MNW), has come back to earth after having its share price pumped to irrational heights last year. The company provides mobile payment systems that allow merchants and tradespeople to take electronic payments with the assistance of a portable device and a smartphone. Although the major banks offer similar systems, the application process for Mint’s system is easier and the costs are more transparent.
While this is clearly a growth area, I think Mint Wireless may still be overvalued because it faces tough competition from a similar company called Quest Payments that seems to offer a similar service for slightly lower prices. For example, the EFTPOS transactions cost at least 28c with Mint, but only 25c with Quest. Perhaps Mint’s best advantage is that it offers a white label solution. Indeed, it has already signed Bank of New Zealand as a white label customer.
Finally, I must mention Redflow Limited (ASX: RFX), a battery manufacturer that has seen its shares shoot up 37% in the last two days, and is now up 125% since I said it could be a big winner. In case you’re wondering, I don’t own shares, unfortunately. I’m not buying at the moment because I don’t want to buy while sentiment is so positive.
The most recent good news is that the company has successfully charged and discharged 4 strings of 12 batteries, running through a 144kW inverter. For those of you who prefer plain English, that means that the batteries are probably suitable for storing solar energy and stabilising renewable energy powered micro-grids.
This bodes extremely well for the company because solar plus storage is likely to be cheaper than grid connected energy in many locations. Shareholders will be hoping that Redflow’s batteries find a market in Europe, since the company recently signed a distribution agreement with an Austrian company.
Please Note: If you're a long term investor, there's usually room for a risky holding in your portfolio, but core holdings should be well established businesses that can afford to pay a dividend.
Might I therefore recommend, this proven company which has grown its dividends per share for 9 years in a row. The best part is, this company benefits from long-term tailwinds...
Indeed, a co-founder recently bought a large number of shares at within 3% of current prices. I doubt the share price will stay this low for long, so discover this stock now, before it's too late.
Motley Fool contributor Claude Walker (@claudedwalker) owns shares Analytica and has an indirect interest in Redflow.