In the nearly 13 years since the stock market bottomed out during the Great Recession, investors have enjoyed an almost nonstop rally. Thanks to historically low lending rates and a dovish monetary policy, this upside has been predominantly led by growth stocks.
Yet for a select group of fast-paced companies, significant upside still awaits. According to the 12-month price targets assigned by specific analysts and investment banks covering the following three growth stocks, their upside ranges from a low of 253% to as much as 650%.
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Plug Power: Implied upside of 253%
The first company that potentially offers insane upside potential is hydrogen fuel-cell solutions provider Plug Power (PLUG -5.17%). Analyst Amit Dayal of H.C. Wainwright has steadfastly stuck by his and his firm's price target of $78 on the company's previously high-flying shares. Based on where shares ended last weekend, we're talking about upside of up to 253%.
The buzz surrounding Plug Power has to do with a push by most developed countries to reduce their carbon footprints in the years and decades that lie ahead. One of the easiest ways to tackle greenhouse-gas emissions is to promote renewable or cleaner energy in conveyances, such as autos. Plug Power, which provides hydrogen fuel-cell solutions and hydrogen hub infrastructure, will be one of many companies expected to play a key role in this green-energy transition.
Pardon the pun, but further fueling interest in Plug Power has been the company's ability to forge partnerships. In January 2021, Plug landed two key joint ventures that have the potential to be significant revenue drivers over the long run.
For instance, SK Group took a 10% equity stake in Plug and formed a joint venture that seeks to bring fuel-cell technology to autos and refilling stations in multiple Asian markets. Roughly a week after landing the SK Group partnership, Plug and French-automaker Renault created a joint venture, now known as Hyvia. The goal for Hyvia is to promote hydrogen fuel-cell solutions to go after Europe's light commercial-vehicle market.
Additionally, the company is benefiting from its existing relationships with retail-giants Amazon and Walmart. Both companies are utilizing Plug Power's fuel-cell technology in their forklifts.
The key question is whether this company can maintain a large valuation premium with interest rates set to climb. Traditionally, valuation multiples contract when the Fed tightens monetary policy. Until Plug Power reaches recurring profitability, a price target of $78 is likely unattainable.
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Root: Implied upside of 650%
When it comes to growth stocks with monster upside, none surpasses technology-driven insurance company Root (ROOT 0.02%) -- at least on this list. According to Matthew Carletti of JMP Securities, Root is worth $12 a share. If this price target were to become a reality, Root would skyrocket 650% over the coming year.
What's exciting about Root is the company's attempts to disrupt the stodgy auto-insurance industry. For decades, insurance companies have used factors like a person's marital status and credit score to determine how much of a risk they are on the road. The problem is that a person's credit score says nothing about their safety behind the wheel of a car.
Root is changing this dynamic through the use of telematics. In other words, Root is relying on the intricate equipment found in smartphones, such as an accelerometer and gyroscope, to analyze G-forces when someone is braking, accelerating, and turning. Leaning on telematics allows Root to provide drivers with an accurate upfront auto-insurance quote that the company believes actually reflects their driving habits. That's in comparison to legacy auto insurers that, on occasion, provide plug-in devices that can potentially lower monthly auto insurance rates after a driver purchases a policy.
The big unknown with Root is simple: No company has tried using telematics to price auto insurance on a broad scale before. For the time being, the company is losing quite a bit of money as it tries to improve awareness of its brand and product(s).
But what's noteworthy is that Root has had a couple of quarters where its written policies produced a small gross profit and a gross accident-period loss ratio of well below 100%. A figure below 100% signifies a profitably written policy.
While I'm personally a fan of Root's telematics-based approach, seeing $12 in a year is probably out of its reach.
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Ocugen: Implied upside of 334%
A final growth stock with potentially enormous upside is clinical-stage biotech company Ocugen (OCGN). Analyst Robert LeBoyer of Noble Financial believes shares of Ocugen can reach $15 over the coming 12 months. Based on where shares closed this past week, this represents upside of 334%!
Although the company's name is in reference to its work in researching therapeutics for a variety of eye-related ailments, Ocugen's make-or-break play looks to be in the coronavirus-vaccine arena.
In India, biotech company Bharat Biotech developed and tested Covaxin in a 25,800-person trial. This study produced a vaccine efficacy of 78%, ultimately leading the World Health Organization (WHO) to give Bharat's vaccine the green light in November.
The reason I mention Bharat Biotech is because Ocugen has signed a commercialization agreement with the company for Covaxin in the U.S. and Canada. But therein lies the crux for Ocugen. Even though Covaxin has been given the green light by the WHO, Ocugen won't see a dime in revenue unless the U.S. and/or Canada approve Covaxin for sale.
The good news for Ocugen is that the U.S. Food and Drug Administration (FDA) lifted a clinical hold on its investigational new drug application submission for Covaxin less than a week ago.
The bad news is there are plenty of high-efficacy vaccines already available in the United States. This includes COVID-19 vaccines from Pifzer/BioNTech and Moderna, which respectively produced vaccine efficacies of 95% and 94.1% in their large-scale U.S. studies. Even if Covaxin gains FDA approval, it may wind up collecting dust and netting Ocugen very little in sales.
