Because of the out-of-this-world gains made by meme stocks like AMC Entertainment and GameStop, which are up almost 1,500% and 710% so far this year, respectively, too many investors might be getting the idea they should be shooting for the moon, too.
Instead, they should be looking for reliable businesses that can provide steady growth over time -- years, or decades, even -- rather than trying to generate a lifetime's worth of returns in a week's or month's time.
You can still find stocks that are significantly undervalued by the stock market and that could offer outsize returns in a year's time without going for moonshots. The four stocks below are primed for much more attainable gains.
GrowGeneration (Potential upside: 38%)
The operator of the country's biggest chain of stand-alone hydroponic and organic garden centers, GrowGeneration (GRWG -2.57%), offering plant nutrition, growing media, lighting technology, and equipment for hydroponic and aquaponic growing. Look at it like the entrepreneurial individuals of the 1800s who sold picks and shovels to Gold Rush miners headed to California to stake their claim.
Today, though, it's the Green Rush, and California is still the main destination as the largest market for legal marijuana. Of the 58 stores GrowGeneration operates, 21 are in California. The next biggest market is Michigan, where it has seven stores.
And GrowGeneration just announced it is acquiring the third largest chain of hydroponic garden centers, HGS Hydro, which operates six stores in Michigan with a seventh due to open later this year. After the deal closes, GrowGeneration will have 14 locations in Michigan and 65 nationwide.
HGS Hydro generated $50 million in revenue last year, which will increase GrowGeneration's own sales of $193 million by 25% annually. Unafraid of making acquisitions, the pick-and-shovel provider has completed well over a dozen purchases since 2014.
Wall Street isn't hesitant about its expectations for the company, with a consensus buy rating on the stock. And with analysts putting a $56 per share price target, there is 38% upside to be realized over the next year.
DraftKings (Potential upside: 42%)
The country's second biggest sportsbook, DraftKings (DKNG -5.09%), should continue to benefit from the acceptance and growth of wagering on sporting events, which was legalized in 2018.
States are increasingly adopting legislation to authorize sports betting within their borders, and DraftKings figures prominently in the growth projections. Its sportsbook is live in 12 states, representing 25% of the population. And because of its leading daily fantasy sports (DFS) operation, which is active in 44 states, DraftKings can be readily operational whenever it moves into a new market.
Competition is intense in the space, with DraftKings squaring off against leading sportsbook FanDuel and leading online casino-gaming platform BetMGM from MGM Resorts. Yet its own growth is fast-paced, and with the most recognizable name in DFS, it has an outsize advantage.
Analysts target a stock price of about $69 per share, implying 42% growth potential for the sportsbook, and it seems like that's attainable within one year.
Ping Identity (Potential upside: 56%)
Cybersecurity specialist Ping Identity Holding (PING) has both immediate return potential and long-term growth possibilities.
They say nothing is as certain as death and taxes, but in today's computerized age, we can add hacker attacks to the list. There doesn't seem to be a day that goes by anymore when some corporation isn't reporting that its systems were compromised by a cyberthreat, and the recent ransomware attacks against the Colonial Pipeline and meat processor JBS show the need for a strong defense.
Ping Identity offers affordable, customizable, AI-powered identity protection services that grow smarter at recognizing threats and responding to them more efficiently over time. Importantly, its technology allows for protection on site, in the cloud, or as a hybrid solution between the two, meeting the needs of clients wherever the cybersecurity threat presents itself.
Ping's stock got demolished earlier this year after missing analysts' earnings expectations, and while they have a consensus hold rating on the stock, their target price of $34 per share implies that 56% upside is built into the current share price. As it switches over to a more subscription-based model, its revenue streams will become more stable and predictable, putting that price target well within reach over the next year.
Skillz (Potential upside: 73%)
Mobile esports platform Skillz (SKLZ -6.26%) is poised to capitalize on the outsize potential that esports gameplay represents. Global revenue for the industry is expected to hit almost $1.1 billion this year, up 14.5% from 2020. According to data from esports market researcher Newzoo, some $834 million (or more than 75% of the total) will derive from media rights and sponsorships. And the audience for esports livestreams is expected to swell to 729 million people this year and nearly 1 billion by 2024.
The real potential arguably lays with betting on esports gameplay, as states are beginning to authorize wagering on such events.
Skillz is agnostic when it comes to which games are played on the platform -- it merely provides the arena where gamers compete for cash prizes, of which it receives a cut -- so it welcomes everyone through its doors. And because it doesn't have the expense of actually developing games, the company's margins are quite high.
It reported gross margins of 95% in the first quarter on a 92% gain in revenue, which hit $84 million, its 21st consecutive quarter of growth. More importantly, the number of paying monthly average users jumped 81% -- a key because that's where all of Skillz revenue currently comes from. While the number of downloads and installs of its software is consistent with prior periods, the company's ability to convert non-paying players to paying increased substantially.
Wall Street thinks it will keep growing and has a buy rating on the stock, with a consensus target price north of $24 per share, giving investors a sporting chance at a 73% return with this esports stock.