First of all, any decent stock can double your money if you give it enough time. And there’s a general rule that says the greater a stock’s potential for gains, the greater the risk that comes with it.
Having said that, there are some promising companies whose stocks have been beaten down recently for several reasons, especially for a lack of profitability. However, if any of these three companies can not only continue to grow, but can also show investors that it can generate profits, shares could double or even more.
What happened to peer-to-peer lending?
Lending Club was one of the most anticipated IPOs of late 2014, but since the end of its first trading day, shares have lost more than 65% of their value, despite nearly doubling its revenue.
The company’s most recent quarterly report shows an 82% year-over-year increase in loan volume as well as a 210% increase in EBITDA. However, the problem is that Lending Club hasn’t produced much profit yet. In fact, despite originating $2.58 billion in loans during 2015’s fourth quarter, the company managed just $0.01 in earnings per diluted share.
At this point, shares look attractively valued if the growth begins to translate to profitability, but that’s a big if. Even after a recent rise in interest rates, the company’s loans are more attractive than a credit card, so the demand could continue to climb. Analysts are projecting EPS of $0.27 per share this year and $0.45 in 2017, and if the company meets or exceeds these estimates, it could mean big gains for investors.
Lots of demand, but not a lot of profits
SolarCity perhaps has the most potential of any stock on this list. It’s the leader in residential solar installations — an industry that has less than 1% penetration and growing demand. However, the company is yet to show that it can be profitable. (See a pattern forming here?)
The growth is impressive — during the fourth quarter of 2015, installations grew by 54% year-over-year, and the company expects another 44% growth this year. Since the beginning of 2014, the company’s installation rate has grown from 82 megawatts to 272 megawatts. And SolarCity’s commercial installations (the grey in the chart below) has picked up significantly in recent quarters.
Additionally, the 30% federal tax credit that helps drive the company’s business was extended through 2019 and will exist in a reduced form through 2021.
Now, the company needs to do a good job of showing investors that it can control costs, and eventually turn a profit. It has already managed to decrease its cost per watt by 17% over the past two years, but its sales cost per watt has actually increased from $0.51 to $0.56 during that time period. The company has set a goal to get this down to $0.40, and also to drop its installation costs from $1.92 per watt to $1.52. If it can do both of these, while continuing to meet its growth objectives, the next few years could be good to SolarCity shareholders.
Will handmade goods stay popular?
A popular 2015 IPO, Etsy has gone cold, down 64% from its day one price, even after a recent rally.
Just like the other two stocks mentioned, Etsy is producing some impressive growth. For 2015, Etsy’s revenue grew by 39.8%, and EBITDA grew by 34.8%. And, the customer base continues to grow — the company ended 2015 with 15.5% more active sellers and 21.4% more active buyers than the year before.
The company is also confident that the growth will continue for at least several more years. Through 2018, Etsy is projecting a 20%-25% annual revenue growth rate, which even at the low end would translate to 73% higher revenue in three years.
The question is whether that will be enough to produce a profit. For 2015, Etsy produced a net loss of $54 million, or $0.59 per share. Analysts expect that it will be at least 2017 before Etsy turns its first profit, so it’s a risky bet at this point. And there’s always the continuing threat from Amazon.com‘s venture into the online handmade goods business, which is still in its infancy.
These could double your money
Now, I want to be perfectly clear on one point. Just because I say that these stocks could double doesn’t necessarily mean that they will, or even that I think it’s likely. Rather, these are high-potential stocks that need a lot to go right before investors will be rewarded.
For this reason, it’s important to remember these are speculative stocks at this point, and shouldn’t be bought with money you’ll be relying on for your retirement, your child’s tuition, or anything else. However, if you have some money in your brokerage account that you’re willing and able to take a little risk with, these stocks might be worth a closer look.
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The article 3 Stocks That Could Double Your Money originally appeared on Fool.com.
Matthew Frankel has the following options: long January 2018 $10 calls on SolarCity. The Motley Fool owns shares of and recommends Amazon.com and SolarCity. The Motley Fool owns shares of Etsy,. Try any of our Foolish newsletter services free for 30 days. 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.
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