It may seem rather odd to invest in a company investigating a psychedelic drug candidate, a trending electric vehicle (EV) maker, or a flower seller. But often it can be very profitable to have investment interests distinct from others or with the potential for growth. The companies I am referring to here are Compass paths (NASDAQ: CMPS), You’re here (NASDAQ: TSLA), and 1-800-Fleurs.com (NASDAQ: FLWS).
As unusual as the business ideas and technology of these companies are, all three stocks have risen 67%, 64% and 19%, respectively, in the past 12 months. Meanwhile, the S&P 500 the index returned only 14%. Let’s see how these niche stocks could add wealth to your portfolio.
1. Compass paths
Compass Pathways is a leading researcher on 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 intense scrutiny as it was increasingly associated with the counterculture movement. Fearing escalating social unrest, conservative leaders enacted legislation, such as the Controlled Substances Act of 1970, which banned drugs.
However, the political reasons behind the ban on psilocybin are becoming increasingly outdated as researchers discover its medical benefits. There are already more than four independent studies supporting such results. They took place in several prestigious universities around the world and involved nearly 100 patients.
In these clinical trials, patients with depression showed significant improvement in symptoms after taking psilocybin. The difference in treatment, as measured by Cohen’s d (a common way to measure effect size), ranges from 0.81 to 2.98. Meanwhile, patients with depression only saw improvements of up to 0.32 in the same metric after taking standard antidepressants.
These studies suggest that Compass Pathways could to market the world’s first psilocybin-based antidepressant, with revolutionary effects. In a Phase 1 trial, the company’s drug candidate induced several symptoms that were thought to correlate with therapeutic signals and which were well tolerated. However, the results were preliminary due to the small number of participants enrolled, and no conclusions about its effectiveness can be drawn.
The company expects a release of Phase 2b data later this year. If all goes well, the company would have market exclusivity in the US and EU for 5 to 11 years after regulatory approval. At the moment, psilocybin is a banned Schedule I substance (alongside drugs like marijuana and heroin), so consumers would be at criminal risk if they tried to buy less expensive versions. expensive on the black market.
Over 100 million people worldwide suffer from an aggressive form of depression. 80 to 90% of these patients relapse despite taking at least two courses of medication or cognitive behavioral therapy. In the United States alone, these patients can accumulate up to $ 25,000 per year in medical costs. Compass Pathways truly has the potential to address an unmet medical need and may well be the first breakthrough health title to buy right now.
It wouldn’t be wrong to call Tesla the growth stock that everyone is afraid to buy. At present, Tesla’s market capitalization is higher than that of the world’s nine largest automakers combined.
However, Tesla is also leading a revolution in the auto industry. The demand for electric vehicles has never been higher. Right now, the ideal electric vehicle among consumers costs around $ 36,000, has a minimum range of 291 miles, and requires no more than 31 minutes before a full charge. Tesla’s Model 3 can almost meet all three requirements, unlike the Chevy Volt and Nissan Leaf, which can only meet one or two of the three.
Additionally, a significant portion of the price of an EV comes from the cost of the battery. This, however, is getting cheaper every year. In 2013, the average price of an EV battery was $ 668 per kilowatt hour (kWh). Last year it was just $ 137 per kWh. This development is good news for Tesla, which has several large production plants dedicated to the mass production of electric vehicles. It currently delivers around 500,000 cars per year, almost half of its total capacity.
Tesla’s revenue last year increased 46% from 2019, reaching $ 10.7 billion. Its profits more than doubled year over year to $ 903 million. For these reasons, I think Tesla stock is well worth its premium despite trading at 23 times revenue (while some of its competitors are trading at less than one). Valuation cannot be the only goal when it comes to companies with hyper-growth potential.
As the pandemic continues, 1-800-Flowers.com is helping Americans connect with each other, even when we are physically apart. It offers various gifts, bouquets and flowers delivered right to your door, sometimes the same day you order. Now it may seem like 1-800-Flowers is serving a real niche market, but their business is doing surprisingly well financially.
In the second quarter of 2021 (ended 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. . Even though it is extremely profitable, the company only trades for a one-time income and eight times its profits.
This can be hard to believe, as an average ecommerce business has a valuation of 4.5 times sales and 133.7 times profit. One of the reasons for this discrepancy is that the custom of giving flowers and gifts is not very frequent or regular for many consumers. Because of this, 1-800-Flowers is also expanding into other areas to increase revenue, such as developing business solutions for local florists.
The business may seem too original to some, but given its cheap valuations, the risks of the investment not working are already factored into the action. If you’re looking to invest in ecommerce stocks right now, give flower power a shot.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.