Are stock charts predictive
Star investor Wood has bought 3 stocks with 10X potential
Multi-excavators, or stocks that have reached many times their original investment price, are something of a holy grail among investors. The rarest of them is the famous 10 digger - a stock that has increased tenfold from its original cost base. Stocks with this type of explosive growth potential are hard to find.
If there's one investor who has a knack for finding disruptive stocks that can grow many times their original investment, it's Cathie Wood. The founder and CEO of ARK Investment Management demonstrated her skills when her five flagship exchange-traded funds (ETFs) each grew by more than 100% over the past year, beating the broader markets by lengths.
For the past few weeks, Wall Street has been temporarily angry with high-growth stocks, pushing the tech-heavy Nasdaq into correction territory. That didn't stop Wood from buying technology stocks that could deliver groundbreaking results and eventually join the exclusive 10 digger club.Schrodinger: Offers an abbreviation for identifying active ingredients
Unless you're in the biopharmaceutical industry, you've probably never heard of Schrodinger. The company offers a platform that helps biopharmaceutical companies discover new treatments faster than traditional methods. The company's software-as-a-service platform, which includes physics, data analysis, predictive analysis and artificial intelligence, runs state-of-the-art simulations that lead to faster, more cost-effective drug development and the discovery of new treatment options.
With the help of Bill Gates, Schrodinger went public early last year, and the small company has got off to an impressive start. In 2020, revenue grew 26% year over year, driven by software revenues that were up 39%. Gross profit increased 29%, which shows the scalability of the business model, even if it is not yet profitable.
The customer metrics are just as impressive. Last year, the number of customers with an annual contract value (ACV) of $ 1,000 grew 16%, while the number of customers with an ACV of $ 100,000 grew 17%. More importantly, the number of large accounts with an ACV greater than $ 1 million has increased by 60% and the retention rate has been 99%. If these trends continue, the company has a bright future.
Wood has continuously increased the position of the ETF called ARK Genomic Revolution in Schrodinger. Last week's purchases made the company a top 20 position, accounting for nearly 2% of $ 7.7 billion in assets under management.
Schrödinger sits in the front row, at the heart of the digital transformation of drug discovery, and with a market cap of just $ 5 billion, it's easy to imagine a way that Schrödinger could grow tenfold.Opendoor Technologies: Shaping the change in the real estate market
The real estate industry is also in the midst of a paradigm shift in which digital transformation is becoming more and more common. Opendoor Technologies has developed an app-based platform that makes buying and selling a house a breeze. Homeowners can sell their property directly to Opendoor, who will then renovate the house and sell it on at a profit, if possible. Alternatively, you can also decide to sell to other buyers - and all for a comparatively cheap flat rate of 5% of the house value. By eliminating the traditional real estate agent, the company is tapping into a growing and profitable niche. Opendoor caught the attention of Chamath Palihapitiya's Social Capital Hedosophia Holdings, a pioneer in acquisition vehicles (SPACs) who floated Opendoor late last year.
Like many other real estate companies, Opendoor was initially affected by the pandemic, but has seen a comeback. While sales declined 46% year over year, the company's gross profit margin rose from 6.4% to 8.5% of sales. The real estate boom triggered by the pandemic should help Opendoor expand its business. The company was still unprofitable in 2020 but managed to reduce its net loss by 15%.
Both the ARK Next Generation Internet ETF and the ARK Fintech Innovation ETF bought shares in Opendoor a few days ago. The company is a significant holding for both funds, accounting for 2.3% and 2.8% of the funds' holdings, respectively. The digital revolution in the real estate industry is still in its infancy, and with a market cap of just $ 13 billion, Opendoor could well grow into a 10-digger from here.Skillz: A mobile gaming powerhouse
Skillz is a relative newcomer to the gaming industry, but has created a growing niche for itself in mobile gaming and esports. The company's platform can turn virtually any mobile game into a competition where players can earn points or compete for money and prizes. Mobile games have had a large and growing audience over the past year, which adds to Skillz's popularity.
For the year ended December 31, sales grew 92% while gross profit increased 91%. The company's net loss deteriorated 408% as Skillz invested heavily in user expansion through advertising. The company has found that the lifetime value of new members far exceeds the cost of bringing in new members. This will undoubtedly increase the platform's leverage and help multiply future profits. The strategy works as new players flock to the platform. The number of monthly active users grew by 121%, while the average revenue per paying monthly active user decreased by around 12%.
Mobile gaming is the fastest growing segment of the gaming industry. It's already a $ 68 billion business and the market is expected to grow to $ 150 billion by 2025. Wood is undoubtedly aware of the growing market opportunity as Skillz is a top 20 holding in the ARK Next Generation Internet ETF, accounting for 1.75% of the $ 5.27 billion in funds under management. With a market cap of just $ 7 billion, it's not hard to see a way for the stock to hit 10 times its current value.
Chart created with YCharts. Share price development of Opendoor, Skillz and Schrodinger since the beginning of January 2021With all the enthusiasm ...
In order for any of these stocks to become a 10 dredger, a lot has to go right, and a lot could still go wrong to throw them off course. Put simply, these emerging companies have a lot to prove if they are to assert themselves over the long term. That said, there is still huge potential for above-average profits. So it's not surprising that Cathie Wood is increasing ARK's exposure to these emerging companies. As the graph above shows, they were also caught in the general sell-off that has plagued many tech stocks since early February, making them bargains in some ways.
It's also important to note that none of these companies are as yet profitable, and while they are cheaper than they used to be, they still have an ambitious valuation - at least in terms of traditional valuation metrics. Schrodinger, Skillz and Opendoor are sold for 36, 19 and 3 times sales, respectively - a solid price-to-sales ratio for a share is usually closer to 1 and 2.
However, so far, investors have been willing to pay a premium for the disruptive technology and potential to reach the 10-digger status that each of these companies offers.
The article Star investor Wood bought 3 stocks with 10X potential first appeared on The Motley Fool Germany.
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Danny Vena has no position in any of the stocks mentioned. It has been translated so that our German readers can take part in the discussion. Danny Vena has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Opendoor Technologies Inc., Schrödinger, Inc., and Skillz Inc.
Motley Fool Germany 2021
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