For the past nine months, the stock market has been practically unstoppable. The benchmark S&P 500 hasn't undergone a single 5% drop, and it's nearly doubled since hitting its bear-market low on March 23, 2020.
But despite this record-breaking rally, Wall Street still sees value in a number of high-growth stocks. Based on the highest price target issued by a Wall Street investment bank or analyst, the following five growth stocks are expected to return 110% to as much as 393% to shareholders.
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Coinbase Global: Implied upside of 152%
The first rapidly growing stock with abundant upside, at least according to investment firm D.A. Davidson, is cryptocurrency brokerage and ecosystem Coinbase Global (COIN -0.34%). If the lofty $650 price target set by D.A. Davidson comes to fruition, Coinbase would deliver gains of 152% to its shareholders, relative to where it closed this past weekend.
On one hand, revenue and profits have soared for Coinbase. Net revenue in the first quarter catapulted to $1.6 billion from $179 million in the year-ago period, with net income of $771 million, up from $32 million. Growing institutional interest in digital currencies like Bitcoin and Ethereum, along with rapidly rising prices for the Big Two in crypto, drove investors to the platform.
On the other hand, the Coinbase operating model has virtually no barriers to entry, and its trading fees are at risk of constantly being undercut by other cryptocurrency exchanges. Additionally, instead of thriving off of innovation, Coinbase is effectively held hostage by external interest in Bitcoin and Ethereum and the price performance of the Big Two digital currencies. When Bitcoin declined by 80% following its late 2017 peak, Coinbase's revenue was nearly halved.
Long story short, while sales growth has been impressive, Coinbase isn't charting its own path to success. Its reliance on external factors makes $650 a target that's unlikely to be reached.
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Cresco Labs: Implied upside of 160%
One industry where you'll find no shortage of aggressive price targets is cannabis -- specifically the U.S. pot industry. If the highest price target assigned by Wall Street of nearly $29 for Cresco Labs (CRLBF -5.34%) proves accurate, investors in this marijuana stock could enjoy upside of 160%. And unlike Coinbase, this is a price target that I believe can eventually be achieved.
Like other multistate operators, Cresco is expanding its retail operations organically and via acquisition. In June, it opened its 33rd dispensary nationally, and it holds enough retail licenses in its back pocket to eventually have closer to four dozen operating dispensaries.
From a retail perspective, Cresco appears to be focusing its efforts on high-dollar states, as well as those that issue licenses on a limited basis (e.g., Illinois, Ohio, and Pennsylvania). The advantage of limited-license states is they're purposefully reining in competition. That means Cresco will have a genuine opportunity to build up its brands in key markets without the fear of being overrun by a multistate operator with deeper pockets.
Cresco is also the cannabis industry's leading wholesaler of weed. Even though wholesale cannabis produces weaker margins than retail, Cresco Labs has more than enough volume to make up for it. That's because it holds one of only a handful of cannabis distribution licenses in California. This license gives the company access to more than 575 dispensaries throughout the Golden State.
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Baidu: Implied upside of 141%
In spite of a recent crackdown by the Chinese government on a host of tech stocks, Wall Street remains largely undeterred that China-based internet search giant Baidu (BIDU 0.72%) will head higher. In fact, based on the high-water analyst price target of nearly $395, Baidu could offer gains of as much as 141%.
The most obvious catalyst for Baidu is its domestically dominant internet search engine. According to GlobalStats, Baidu has controlled between 66.9% and 79.9% of all internet search share in China over the trailing 12 months. Just as advertisers line up for placement on Alphabet's leading internet search engine Google, they're willing to pay big bucks to reach internet users in China.
Beyond the sustainable double-digit sales growth potential of internet search, Baidu is seeing exceptional early returns from its investment in cloud services and artificial intelligence (AI). Though these ancillary operations only accounted for 21% of first-quarter sales, revenue jumped by 70%. What's more, cloud services and AI offer higher margins, relative to marketing revenue. Over time, we should see these ancillary segments really boost Baidu's cash flow generation.
While I wouldn't count on $395 anytime soon, I do believe $395 is a reasonable future price target for the fast-growing Baidu.
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Intercept Pharmaceuticals: Implied upside of 393%
If you're looking for a company with make-or-break opportunity, biotech stock Intercept Pharmaceuticals (ICPT) might be for you. This polarizing small-cap drug developer with a focus on therapies to treat liver diseases has price targets from Wall Street ranging from as low as $16 to as high as $82. If this upper target comes to fruition, shareholders would nearly quintuple their money.
The promise and peril for Intercept lies with obeticholic acid (OCA), an experimental treatment for nonalcoholic steatohepatitis (NASH), which affects between 2% and 5% of adults in this country and has no cure. In one respect, OCA met one of its two co-primary endpoints in the phase 3 Regenerate study -- a statistically significant improvement in fibrosis without a worsening of NASH. However, the highest and most-effective dose also led to a large number of cases of pruritus (itching) in trial participants.
Ultimately, Intercept's top drug candidate received a Complete Response Letter from the Food and Drug Administration. The plan for Intercept is to provide additional safety and trial data, with the goal of resubmitting the application. Even if OCA is approved and targeted at a small subset of the sickest patients, it could offer blockbuster sales potential in this untapped indication.
The other consideration here is Ocaliva (the brand-name version of OCA) is already approved to treat primary biliary cholangitis and is on track to bring in $325 million to $340 million in sales this year. With an existing safety profile and a modestly growing sales floor, Intercept's risk/reward ratio looks favorable.
The all-electric Nio EC6 crossover hit showrooms last year. Image source: Nio.
Nio: Implied upside of 110%
A fifth and final growth stock with serious upside, according to Wall Street, is China-based electric vehicle (EV) manufacturer Nio (NIO -0.48%). If the loftiest price target of more than $92 were to come true, investors would see their shares more than double in value.
The excitement surrounding Nio has to do with the impending electrification of China's automobiles. The Society of Automotive Engineers of China predicted back in 2018 that half of all vehicles sold in the world's largest auto market would run on alternative energy by 2035. With the EV industry predominantly nascent in China, the door is wide open for multiple companies to gobble up significant share.
Having resolved any funding concerns with capital raises, the focus now is on Nio's production expansion. Even facing industrywide chip shortages, Nio still managed to deliver almost 21,900 EVs during the second quarter, which was more than double what it delivered in the year-ago period. Assuming chip supply issues can be resolved somewhat soon, Nio's annual EV run-rate output should climb toward 150,000.
Additionally, Nio is enticing new buyers with its battery-as-a-service program. Enrolling in this monthly fee-based program can lop thousands of dollars off the initial purchase price of a vehicle, all while improving buyer loyalty for Nio.
A $92 price target might be a bit much for a company that's produced fewer than 118,000 EVs inception. Nevertheless, its execution of late is commendable.
