While risk is always involved when investing in stocks, some equities are riskier than others. For instance, small-cap companies -- that is, those with market caps between $300 million and $2 billion -- tend to carry above-average risk. However, these companies can also offer substantial upside in a relatively short period and perhaps even turn into solid long-term investments.
Let's look at two small-cap companies that could double your money within the next couple of years and deliver solid returns in the long run if they can navigate the road ahead: BioXcel Therapeutics (BTAI 6.28%) and Planet 13 Holdings (PLNH.F -2.77%).
The case for BioXcel Therapeutics
BioXcel Therapeutics focuses on developing innovative therapies in neuroscience and immuno-oncology. The biotech currently boasts a market capitalization of $379 million and a share price of $11.75. However, that valuation hardly reflects the potential of the company and its most important product, Igalmi, a sublingual film for treating acute agitation (psychological and behavioral symptoms typically characterized by anxiety or intense activity) associated with schizophrenia and bipolar disorder.
Image source: Getty Images.
Igalmi ran into regulatory headwinds last year, which is one major reason BioXcel Therapeutics' shares have declined sharply recently. The company's stock is down 62% in the past year. The Food and Drug Administration finally granted the therapy approval in April, and so Igalmi's launch should be underway. BioXcel estimates that there are 7.3 million schizophrenia and bipolar disorder patients in the U.S. who suffer from up to 25 million agitation episodes annually.
Current standards of care for this type of agitation are inadequate, making Igalmi a potentially welcome option for healthcare professionals. If this therapy can capture even 1% of this patient population -- roughly 73,000 people -- its revenue potential could far outweigh BioXcel's current market cap.
And it's also studying Igalmi as a potential treatment for agitation episodes associated with Alzheimer's disease, and as an adjunctive treatment for major depressive disorder. If the therapy is approved in both indications, it would add thousands of potential patients to BioXcel Therapeutics' target market.
Meanwhile, BioXcel Therapeutics also has a couple of other pipeline candidates in immuno-oncology undergoing early stage studies.
None of this news seems to have helped the stock much. The shares are trading near the 52-week low and some 70% off their high. Geopolitical and economic tensions seem to be weighing on the stock, especially given that BioXcel Therapeutics still generates no revenue and is consistently unprofitable. And of course, investors also have in mind the typical issues biotech companies face, including potential clinical and regulatory setbacks.
Still, in my view, the market is undervaluing this company's potential. Investors should remain cautious, and interested ones should start by opening a small position, with a plan to progressively add more shares as BioXcel Therapeutics proves itself -- assuming it does. But if all goes well for the company, its stock price could skyrocket in the next two years.
The case for Planet 13 Holdings
Nevada-based cannabis grower and retailer Planet 13 Holdings has also lagged the market in the past 12 months, in part due to the impact of the pandemic on its business. The company's shares are down by 77% in the trailing twelve-month period. It currently trades at about $1.47, making it a penny stock with the risk that entails.
Its revenue growth rates have declined substantially in recent quarters, and the company still isn't consistently profitable. In the first quarter, Planet 13's top line increased by 8% year over year to $25.7 million. Its net loss for the quarter came in at $2.1 million, but that was better than the $6 million net loss it reported in the year-ago period. Investors should not ignore Planet 13's regular net losses and slowing top-line growth. Rising expenses are also an issue due, in part, to expansion efforts at a time when foot traffic in some of its brick-and-mortar stores continues to be impacted by the outbreak.
That said, given its market cap of just $315 million, the company's shares have fallen low enough that even with the problems it faces, it may be worth investing in at current levels. After all, it's building a brand based on a unique business model among its peers in the cannabis industry. The company's claim to fame is its marijuana superstore located on the famous Las Vegas strip.
Customers who visit that store can witness Planet 13's production process and enjoy various other activities, including a restaurant, coffee shop, and purchasing various cannabis-themed souvenirs. While the pandemic decreased the superstore's foot traffic, this strategy was working successfully beforehand -- and it will likely be a success again as the crowds return to Las Vegas. That's because, as the company notes, 74% of Americans prioritize experiences over products, according to a 2018 survey.
That gives Planet 13 Holdings an edge over many of its competitors. It also opened a superstore in Orange County, California -- another prime tourist destination -- in June 2021. The company has plans to launch more superstores in various major U.S. cities over the next few years. Planet 13's long-term strategy will take serious funds to implement -- and it will raise its operating expenses, too. But it's not consistently profitable, which makes it a risky stock to invest in. It could also resort to dilutive forms of financing, putting even more downward pressure on the stock.
That said, if the pandemic does evolve into a less-intense endemic situation that is largely less impactful on people's behaviors, and this vertically integrated marijuana business regains its pre-pandemic health, its stock could more than double from its current levels.
