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2 Monster Growth Stocks in the Making

By Prosper Junior Bakiny – Dec 28, 2021 at 10:30AM

Key Points

  • Tandem Diabetes Care continues to win over customers thanks to its innovative insulin pump.
  • Planet 13 has an exciting strategy that could pay off big time in the fast-growing cannabis market.

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When companies boast multibagger potential, it's often better to get in early.

Those who invested early in such companies as Amazon and Netflix and held their shares for a while are undoubtedly happy they did so. Both tech giants have delivered market-shattering returns in the past 20 years. Both companies still look attractive today, but getting in on the ground floor would have been even better.

Unless you have a time machine, though, that's not an option. Thankfully, there are other rising companies that could go on to become giants -- at least, in their respective industries -- and handsomely reward shareholders in the process. Two such companies that deserve consideration are Tandem Diabetes Care (TNDM 0.91%) and Planet 13 Holdings (PLNH.F -5.67%)

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1. Tandem Diabetes Care

As a company seeks long-term success, it helps to be a leader in an industry ripe for growth. That description fits Tandem Diabetes Care. The company focuses on developing innovative insulin pumps for diabetes patients. Tandem's crown jewel, the t:slim X2 insulin pump, prides itself on ease of use and an automatic insulin delivery system (when paired with DexCom's G6 continuous glucose monitoring system), among other perks.

There is no denying the growth opportunities in this market. In the U.S., 64% of type 1 diabetes patients currently rely on painful and multiple daily injections (MDIs) instead of insulin pumps. In other words, while insulin pumps continue to make headway in the country, there remains a sizable portion of the patient population to win over, which is good news for Tandem.

Note that the percentage of the population with diabetes is projected to continue growing. While that's not great news, it means there will be an increasing need for products like the t:slim X2.

One person showing data to another person on a tablet.

Image source: Getty Images.

Tandem continues to increase its top line at a good clip. In the third quarter, it recorded sales of $179.6 million, 45% higher than the year-ago period. That was on the back of 31,558 pumps shipped for the quarter, a 43% increase over last year. Tandem ended the quarter with nearly 300,000 customers worldwide.

On the bottom line, the company's net income came in at $5.8 million compared to the net loss of $9.4 million it reported in Q3 of last year. For the fourth quarter, Tandem expects sales of $685 million to $695 million, which would represent year-over-year growth of 37% to 39%. In other words, business is going well for the company.

There is more to look forward to ahead. The company is now aggressively expanding its operations abroad to approximately 110 territories.  While these efforts could increase expenses and shrink the bottom line in the short run, they are well worth it in the long run. An even greater opportunity is outside the U.S., where penetration in this market stands at a mere 12%.

Tandem also has to deal with competition, but it's doing well on that front; roughly 50% of its consumers switched from a competitor's insulin pump, not to mention first-time pump users who have switched from daily injections. Tandem looks like it has the tools to provide excellent returns for many years to come. 

2. Planet 13 Holdings

The pot market is another lucrative, long-term opportunity. According to some estimates, the industry will expand at a compound annual growth rate of 13.9% through 2026. Planet 13 Holdings takes a slightly different approach than most of its peers in this sector. Like others, the company sells various marijuana products, including cannabis flower, edibles, vape products, and more.

But it also seeks to make cannabis shopping more of an experience with its superstore, which is strategically located on the Las Vegas strip. In this entertainment complex, as Planet 13 calls it, visitors can observe the company's cannabis production process, grab a bite to eat or a cup of coffee, and take part in other activities. Planet 13 justifies its approach with the following statistic: 74% of Americans prioritize experiences over products. That's why superstores of the kind it runs in Las Vegas feature squarely in Planet 13's long-term strategy.

In June, the company opened its second store in Orange County, California. This store is touted as California's largest cannabis dispensary complex. The company's master plan is to open at least eight such stores in various attractive markets in the U.S. in the next five years. It also plans to open smaller "neighborhood stores" across the country.

For the third quarter, Planet 13 reported revenue of $33 million, a 45% increase over the year-ago period. The company isn't consistently profitable yet -- it recorded a net loss of $10.2 million in the quarter vs. net income of $0.2 million in the third quarter of 2020. Most pot companies are currently unprofitable, and that's one thing that makes the sector highly volatile to practically every bit of news. That said, given Planet 13 Holdings' unique strategy in the cannabis industry as well as the sector's growth potential, it is reasonable to be patient with the red ink, at least for now.

The more immediate challenge for Planet 13 -- and so many other businesses -- is the pandemic, which affected foot traffic in its Las Vegas superstore in 2020. But the company was able to smooth out the losses due to the outbreak by taking advantage of curbside pickup and delivery options for its products. As a result, it navigated last year relatively well with its revenue rising 10.8% to $70.5 million.

The first half of this year has been strong again. In March, Planet 13 reported sales of $9.7 million, a record for any single month. It went on to beat that record in April and then again in May.

However the stock has been sinking in recent months. With new variants of the coronavirus popping up in the second half of the year, investors may be worried that as the pandemic drags on, it will continue to affect Planet 13's business. But given that the company has already shown it can navigate current conditions, this need not be cause for too much concern.

Planet 13's long-term plan isn't guaranteed to work. The company is still looking to establish a stronger presence across the U.S. It's also still a pretty small company with a market cap of just over $600 million and a stock price hovering at $3.15 per share. That makes this marijuana company a bit risky, but the upside could be enormous too, especially for investors who get in on the action at current levels.

Prosper Junior Bakiny has no position in any of the stocks mentioned. The Motley Fool owns and recommends Planet 13 Holdings Inc. The Motley Fool recommends DexCom. The Motley Fool has a disclosure policy.

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