A 10-bagger share is one that will return 10 times the initial investment. Over the past decade, there have been many growth shares on the ASX that have multiplied their initial share price 10 times or even 100 times. Unfortunately, while it is always easy to see the signs in hindsight, it is far harder to spot them beforehand.
Right now, investors are looking at payments companies, buy now, pay later (BNPL) companies and tech startups for tomorrow’s 10-bagger shares. This includes undeniably great companies like EML Payments Ltd (ASX: EML), Afterpay Ltd (ASX: APT), and Whispir Ltd (ASX: WSP).
However, I think some of tomorrow’s growth shares are in the innovation and science space. Australia has always been an innovative country. This is a different area of growth than fintech or technology, and doesn’t always come with the same headline-stealing rate of growth as we’ve seen in the BNPL space. For instance, CSL Limited (ASX: CSL) multiplied its original share price only 5 times in the first 11 years.
The 3 ASX growth shares I have listed below have a few characteristics in common. First, their innovation is very advanced. In fact, in 2 cases they are already generating revenue. Second, they have diversified their management away from the founders, instead handing over the corporate management to people with expertise in product commercialisation.
Growth shares for the environment
The market values Phoslock Environmental Technologies Ltd (ASX: PET) at $171.88 million at the time of writing. The company is commercialising a unique product also called Phoslock, which cleans polluted waterways. I am a very big fan of companies and technologies that improve our environment, particularly those that can survive without government subsidies and deliver practical and measurable results. Phoslock is one of these products.
CSIRO originally developed Phoslock in the early 2000s. It is a patented, one of a kind technology. Phoslock permanently binds to phosphate in waterways, therefore reducing or eliminating algal blooms. These produce toxins that affect either aquatic life, such as fish, or even human health.
The company recently announced new project sites in Washington State and New Jersey, USA. In addition, it has extended a project in Brazil and has ongoing applications in both Italy and the Netherlands. Furthermore, the company has historic applications throughout Austria, Canada, the UK, Germany and Australia.
I think this growth share could easily multiply its share price several times over the next 2–5 years, given its ongoing international applications.
A world-changing technology
Recce Pharmaceuticals Ltd (ASX: RCE) is a medical research company that is developing a range of products in a revolutionary area of medical science. Once complete, I believe the company’s products will irreversibly change the treatment of superbugs and viral infections.
The Recce (pronounced recky) share price caught fire recently on the back of news that 2 of the company’s products had been selected for a CSIRO trial for an antiviral to treat Covid-19. An antiviral is not a vaccine, rather it is a treatment for a viral infection. Shortly thereafter, it was also selected for a trial in the USA for the same purpose.
Recce is developing a new type of synthetic antibiotic, one that is bactericidal. Therefore, it doesn’t work to inhibit bacteria, but kills and eliminates it. In addition, repeated use will not reduce its impact.
The company’s initial target was to find a successful treatment for sepsis or blood poisoning. Sepsis is a life threatening reaction the body sometimes has to infection. In 2017, according to The Lancet, sepsis killed 11 million people globally amid 48.9 million reported cases, yet still there is no treatment for it. I find this to be a mind-boggling statistic.
To illustrate the level of momentum this growth share has outside of the Covid-19 trials, it has already secured fast track designation from the FDA in the US for one of its products, RECCE 327, in addition to 10 years of post-approval market exclusivity.
So, while the Covid-19 trials are welcome news, the company was already well advanced in building a first-of-its-kind treatment for several global health problems.
The future is now
Artificial intelligence (AI) is a technology that learns from experience. Brainchip Holdings Ltd (ASX: BRN) is the world’s only listed pure-play AI company. It already has existing products which it has found a market for. So, like Phoslock, the company is earning revenue. However, like Recce, the company spends its earnings developing a first-of-a-kind technology.
BrainChip has successfully developed products that use its existing neural technology to generate revenue. For example, video security in casinos is one of the company’s core verticals. The technology automatically detects dealer errors by monitoring the video streams from standard surveillance cameras. It recognises the cards played, winning hands, the rules of the game and the payout.
In addition, airports have deployed the technology for facial recognition of known terrorists, along with several unnamed subway systems in Europe for recognition of wanted criminals.
The company is moving very quickly to create something called neuromorphic technology. This is several magnitudes of advancement from existing AI technology and mimics the human brain and nervous system. Consequently, the applications are truly next level concepts. One of the areas where advanced AI could be deployed is to move from unmanned drones to autonomous drones and field robots.
These cutting-edge ASX growth shares are all well under way in their innovative processes. They have either developed a revenue stream already, or they are very close to doing so. Most importantly, the technological genius behind each of these organisations has recently stepped aside, in the case of Phoslock, or has deliberately moved into the research and development area. Consequently, people who know how to make money and grow a business are running each company.
Personally, I will probably invest a small amount into Recce Pharmaceuticals shares in the near future. Nonetheless, I think each one is very likely to see strong growth over the next 2–3 years.
These 3 stocks could be the next big movers in 2020
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Daryl Mather has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends Whispir Ltd. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of CSL Ltd. The Motley Fool Australia owns shares of and has recommended Emerchants Limited. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool Australia has recommended Whispir Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.