When the curtain closes on 2021, it'll undoubtedly be remembered as the year retail investors rocked the boat. For more than six months, retail investors have been scouring Wall Street to look for the next short-squeeze candidate and find a stock they believe will "go to the moon."
The problem is that heavily short-sold stocks tend to be poor investments. It's not uncommon for short sellers to latch onto companies with poor operating performance. Thus, the retail crusade to find the next moonshot based solely on short interest is liable to come up (pardon the pun) short.
But make no mistake about it, there are stocks that can go to the moon. To find stocks ready for launch, retail investors have to look under the radar to find unique, fast-growing businesses. The following under-the-radar stocks fit the bill of companies that look moon-bound.
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EverQuote
Generally speaking, the insurance industry is a moneymaker. However, it's also a slow-growing and otherwise boring operating model. Online insurance marketplace EverQuote (EVER 5.05%) aims to bring rapid growth to an industry that's largely devoid of innovation.
EverQuote's niche is digital advertising within the insurance space. Whereas the entire U.S. insurance market will see distribution and ad spend grow by an estimated 4% a year through 2024, digital insurance ad spend is projected to grow by 16% annually over the same timeframe. Meanwhile, EverQuote's estimated sales growth could be nearly double this amount, based on Wall Street's prognostications. For context, the company's compound annual growth rate (CAGR) between 2015 and 2020 was 29%.
The answer to "Why EverQuote?" is simple: It's a win-win for consumers and advertisers. Consumers want an easy way to quickly and accurately compare insurance policies on one site. Nearly all of the top 20 auto insurers are onboard with EverQuote's online marketplace. As for insurers, they want their digital ad dollars to be as focused as possible. With EverQuote, their spending is specifically going toward motivated shoppers, rather than a random audience. Approximately 1 out of 5 consumers who request a price quote on EverQuote's marketplace purchases a policy.
What's more, EverQuote's operating model is scalable to new verticals. Since 2016, the company has introduced new insurance marketplace options, including home, rental, life, and health insurance. While these new verticals made up only 18% of sales last year, they're growing at a much faster clip than the auto segment (a 112% CAGR between 2016 and 2020).
With a market cap below $900 million and an average daily volume of just over 200,000 shares, EverQuote offers stealthy growth for a relatively undiscovered stock.
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Columbia Care
U.S. marijuana stock Columbia Care (CCHWF -2.00%) is another under-the-radar company that could go the moon if it's able to execute on its aggressive expansion strategy.
The great thing about U.S. cannabis stocks is they don't need federal reforms to thrive. As of today, 36 states have waved the green flag on medical marijuana, with 18 of these states also passing legislation to allow for the consumption and/or retail sale of adult-use weed. As long as the U.S. Justice Department maintains a hands-off approach, organic growth and new legalizations should sustain double-digit growth for pot stocks for a long time to come.
More specific to Columbia Care, it has two core strategies designed to make it and its shareholders a lot of green. First, there's a big focus on acquisitions, which has helped the company reach 95 dispensaries on a pro forma basis (i.e., assuming all pending deals close). Less than a month ago, Columbia Care acquired CannAscend in Ohio, which operated four dispensaries, and it closed its buyout of Green Leaf Medical less than two months ago. The latter deal bolstered Columbia Care's retail, processing, and cultivation presence in the mid-Atlantic region. While these deals could hold back Columbia Care's bottom line throughout 2021, it should help the company achieve rapid growth and profitability in 2022.
Secondly, Columbia Care has carefully expanded into a number of limited-license markets. By limited license, I'm talking about states that either cap the number of retail licenses they'll issue in total, and to specific businesses, or states that issue licenses based on jurisdiction (e.g., Virginia). Legalized states that purposefully throttle back competition is great news for Columbia Care, as it'll have a good chance to gobble up significant share in key markets without getting steamrolled by competitors.
With sales expected to catapult 670% between 2020 and 2024, based on Wall Street's forecast, Columbia Care could be a surprisingly strong performer in the cannabis space.
Image source: Getty Images.
Lovesac
A third high-growth stock that's flying under the radar but has serious moonshot potential is furniture company Lovesac (LOVE -0.05%).
I know what you might be thinking: "First an insurance stock, and now a furniture company? Is he trying to bore me to death?" But like EverQuote, Lovesac is doing things differently and disrupting an industry that's long overdue for innovation.
Though Lovesac might be associated with its first standout product, bean bag chairs (known as sacs), more than 80% of revenue now derives from the company's modular couches, known as sactionals. Lovesac's sactionals can be rearranged dozens of different ways, making them perfect for any livable space. There are also more than 200 different sactional covers consumers can choose from, meaning there's no doubt Lovesac can match the color scheme or theme of a household. And best of all, the yarn used in sactionals is made entirely from recycled water bottles. That's functionality, choice, and ESG investing rolled up into one product line.
Another way Lovesac has differentiated itself is its ability to adjust to prevailing market conditions. While brick-and-mortar furniture retailers are reliant on foot traffic into their stores, Lovesac was able to shift nearly half of its sales online during the pandemic-impacted fiscal 2021. The company was already operating with lower overhead costs than traditional furniture stores before the pandemic struck. But emphasizing direct-to-consumer purchases and pop-up showrooms (to a lesser degree) really boosted margins and pushed Lovesac to recurring profitability two years earlier than expected.
Lovesac is worth just over $900 million as a company and is expected to see its sales nearly double over the next three years. That's what we call moonshot-worthy.
