It may seem rather strange to invest in a company that is investigating a psychedelic drug candidate, a hyp-up electric vehicle manufacturer or a flower supplier. But it can often pay off to have investment interests that are different from others or packed with growth potential. The companies I am referring to here are Compass paths (NASDAQ: CMPS), Tesla (NASDAQ: TSLA)and 1-800-Flowers.com (NASDAQ: FLWS).
As unusual as these companies’ business ideas and technology, the three shares have increased by 67%, 64% and 19% respectively over the past 12 months. Meanwhile, have S&P 500 index returned only 14%. Let’s look at how these niche stocks can give your portfolio serious fortune.
1. Compass paths
Compass Pathways is a leading investigator of the use of psilocybin for the treatment of depression. Psilocybin is a substance found in “magic mushrooms” that causes intense hallucinations. During the 1960s, psilocybin came under scrutiny because it was increasingly associated with the counterculture movement. For fear of escalating societal concerns, conservative leaders passed legislation, such as the 1970 Controlled Substances Act, which bans the drug.
However, the political reasons behind the ban on psilocybin are becoming increasingly obsolete as researchers reveal its medical benefits. There are already more than four independent studies that support such results. They took place at several prestigious universities around the world and involved close to 100 patients.
In these clinical trials, patients with depression showed significant improvement in symptoms after taking psilocybin. The treatment difference, measured with Cohen’s d (a common way of measuring effect size), varies from 0.81 to 2.98. Meanwhile, patients with depression only saw an upward improvement of 0.32 in the same measure after taking antidepressants.
These studies suggest that Compass Pathways could develop the world’s first psilocybin-based antidepressant on the market – with revolutionary effects. In a phase 1 study, the company’s drug candidate induced several symptoms that were considered to correlate with therapeutic signals and were well tolerated. However, the results were preliminary due to the small number of participants notified, and no conclusions can be drawn about its effect.
The company expects a phase 2b data launch later this year. If all goes well, the company would have market exclusivity in the US and EU for between 5 and 11 years after regulatory approval. Right now, psilocybin is a banned substance under Schedule I (along with drugs such as marijuana and heroin), so consumers would face criminal risks if they tried to buy cheaper versions on the black market.
Over 100 million people around the world suffer from an aggressive form of depression. 80% to 90% of these patients relapse even though they have taken at least two medications or undergone cognitive behavioral therapy. In the United States alone, these patients can raise up to $ 25,000 a year in medical expenses. Compass Pathways really has the potential to meet an unmet medical need, and is perhaps just the best revolutionary healthcare stock to buy right now.
It would not be wrong to call Tesla the growth stock that everyone is afraid to buy. Right now, Tesla’s market value is greater than the world’s nine largest car manufacturers combined.
But Tesla is also leading a revolution in the automotive industry. Demand for electric vehicles has never been higher. At present, the ideal electric car among consumers costs about $ 36,000, has a minimum range of 291 miles and requires a maximum of 31 minutes until fully charged. Tesla’s Model 3 can meet almost all three requirements, in stark contrast to the Chevy Volt and Nissan Leaf, which can only meet one or two of the three.
In addition, a significant part of the EV price comes from the cost of the battery. However, it gets cheaper every year. In 2013, the average price of an EV battery was $ 668 per kilowatt hour (kWh). Last year it was only $ 137 per kWh. This development is good news for Tesla, which has several large production facilities for mass production of electric cars. It currently supplies about 500,000 cars a year, almost half of its total capacity.
Last year, Tesla’s revenue increased by 46% from 2019 and amounted to $ 10.7 billion. Profits doubled more than the year before to $ 903 million. For these reasons, I think the Tesla share is well worth its premium despite trading at 23 times revenue (while some of its competitors trade at less than one). Valuation may not be the only focus when it comes to companies with hyper-growth potential.
As the pandemic continues, 1-800-Flowers.com helps Americans connect with each other, even when we are physically apart. It offers various gifts, bouquets and flowers that are delivered directly to your doorstep – sometimes the same day you order. Now it may seem that 1-800-Flowers is earning a real niche market, but its business is doing incredibly well in terms of its finances.
As of the second quarter of 2021 (ending December 27), 1-800-Flowers managed to increase its revenue and net income by 45% and 53%, respectively, to $ 877.3 million and $ 113.7 million, respectively. Although it is very profitable, the company only trades revenue once and eight times profit.
It can be hard to believe, as the average e-commerce company has a valuation of 4.5 times sales and 133.7 times earnings. One reason behind this discrepancy is that the habit of giving flowers and gifts is not a very frequent or regular event for many consumers. Because of this, 1-800-Flowers is also expanding its operations to other areas to increase its revenue, such as developing business solutions for local florists.
The business may sound too out-of-the-box for some, but given its cheap valuations, the risks of the investment not already working in the stock are priced. If you want to invest in e-commerce stocks right now, give Flower Power a try.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We are motley! Questioning an investment dissertation – even one of our own – helps us all think critically about investments and make decisions that help us become smarter, happier and richer.