Although there are more than six months left in 2021, there's little question that this will be remembered as the year retail investors shook Wall Street to its core.
Beginning in January, retail investors on Reddit and other social media boards began banding together to buy shares and out-of-the-money call options on stocks that were heavily short-sold. The dual goals for these predominantly young and novice investors have been to effect a short squeeze -- an event where pessimists run for the exit at the same time -- and stick it to the institutional investors, who in many cases were the primary short-sellers of these companies.
The result was that dozens of obscure companies were "sent to the moon" on a combination of short squeezes and general retail investor hype.
While there's no doubt that some retail investors have made bank on these short-term moves, I'm all about investing for the longer term and focusing on companies with tangible growth prospects. The following three stocks are all riding under-the-radar at the moment, and each has the tools and innovation necessary to "go to the moon."
A perfect example of an under-the-radar game-changer that's going to require patience from investors is insurance company Root (ROOT 2.30%).
Generally speaking, insurance is a slow-growing, profitable, and dare I say boring, operating model. However, Root is looking to shake things up in an industry where everything has been predetermined by broad-stroke metrics for decades. Instead of pricing auto insurance policies using credit scores and other impersonal metrics, Root plans to lean on telematics.
In simple terms, Root is using the sensitive instrumentation found in smartphones to get a better idea of how people drive. Brake too hard? Accelerate too quickly? Turn suddenly and create a lot of G-force? That data is going to be picked up by your phone's gyroscope or accelerometer, and it'll help Root determine whether you're a safe driver or not. In this manner, Root can potentially offer discounts prior to a person purchasing a policy, rather than doing what other major insurers do, which is dangle a potential discount with a device that plugs into your vehicle long after you've become a customer.
Root is also able to dynamically adjust its policies and pricing options based on individual state laws. This focus on data has so far led to a reduction in the company's direct accident period loss ratio from 106% in Q1 2019 to 77% in Q1 2021. Any figure below 100% represents a profitably written policy, and it suggests that Root's telematics-based operating model works.
Root will be spending big bucks in the years to come on expanding its policy offerings and via marketing, so losses are expected. But if telematics continue to prove fruitful, Root could blossom into a full-fledged money tree over the long run.
The Original BARK Company
Another exceptionally high-growth company flying under the radar that could make investors rich is The Original BARK Company (BARK 1.87%). Less than three weeks ago, special purpose acquisition company (SPAC) Northern Star Acquisition completed its merger with BarkBox to create The Original BARK Company.
As the company's name alludes, BarkBox provides products and services for dogs. This is noteworthy given how unstoppable spending in the companion animal industry has been for decades. Data from the American Pet Products Association shows 67% of U.S. households own at least one pet, and that close to $110 billion will be spent on companion animals this year. It's also been at least a quarter of a century since year-over-year pet expenditures declined. Virtually all owners treat their pets as members of the family, and they're willing to spend big to ensure they're happy and healthy.
While BARK does have its products in more than 23,000 retail outlets nationwide, this is predominantly a subscription-based online model. This means relatively low overhead costs, high margins (usually around 60%), and somewhat predictable cash flow as a result of rising monthly product retention. After ending the previous fiscal year with 663,000 subscribers, the company nearly doubled its subscriber count to 1.2 million (in fiscal 2021) during the worst economic decline in decades.
BarkBox's innovation will also play a key role in its long-term success. Though its bread-and-butter monthly subscription that sends treats and toys to dog owners will remain a driving force, the introduction of Bark Home and Bark Eats represent significant opportunities. Bark Home provides an array of basic accessories, such as beds, collars, and leashes. Meanwhile, Bark Eats allows owners to create personalized dry-food diets for their pup.
BARK expects its sales could nearly double over the next two years, which would make it one of the cheapest pet stocks, relative to sales, yet the fastest-growing.
The vast majority of the billion-dollar market cap marijuana stocks aren't flying under the radar. They've been bought hand over fist by growth-seeking investors. However, small-cap Jushi Holdings (JUSHF -6.40%), which remains relatively unknown in the cannabis space, just might offer the most attractive returns of the entire group.
There are a lot of unique approaches for U.S. multistate operators to grow their business. Some choose to plant their proverbial flag in as many legalized states as possible (ahem, Curaleaf), while others have an almost laser focus on a single market (Trulieve Cannabis in Florida). For Jushi, more than 80% of its sales are likely to come from three states: Pennsylvania, Illinois, and Virginia. The former two states limit the number of retail licenses they'll issue, whereas Virginia assigns dispensary licenses by jurisdiction. The point being that Jushi chose markets where competition will be purposefully limited or nonexistent. This will allow the company to build up its brand and create a loyal following.
Despite its smaller stature, Jushi has not been afraid to use its cash war chest to make acquisitions. Since the year began, it expanded its cultivating capacity in Virginia, boosted its dispensary count in Pennsylvania, and added two retail locations in California. The Golden State is the largest cannabis market in the world by annual sales.
One of the more intriguing aspects of Jushi is that its insiders and executives contributed $45 million of the first $250 million in raised capital. When the interests of insiders and execs match up with shareholders, we often see good things happen.
By 2024, Jushi could easily be above $600 million in annual sales, yet its market cap is currently less than $1 billion. Based on sales, Jushi is as cheap as it gets for marijuana stocks.