The bulk of today's great companies were once unproven start-ups with big ideas. The prospect of finding a stock that can compound severalfold over time is one of the most alluring aspects of investing in the stock market. But it can also be the most risky form of investing as there are many companies that underperform the stock market or even fail entirely.
Investing in hidden gems requires a great deal of patience and risk tolerance. And for most folks, it should only make up a small portion of a diversified portfolio. For those bold enough to venture into the unknown, LanzaTech Global (LNZA 2.94%), Nio (NIO 0.29%), and Joby Aviation (JOBY 0.50%) are three stocks that could have massive upside potential in addition to a great deal of risk. Here's why each growth stock could be worth a look.
This carbon capture innovator could deliver considerable growth
Scott Levine (LanzaTech): Global interest in carbon capture and storage is escalating. ExxonMobil, for example, estimates that the carbon capture and storage market could grow to $2 trillion by 2040 from an estimated $2.4 billion in 2022. In light of this market opportunity, LanzaTech is a compelling consideration.
Unlike some companies that plan on simply capturing carbon and storing it somewhere, LanzaTech captures the carbon and transforms it into new products. Currently, LanzaTech operates three facilities that use its gas fermentation platform to transform carbon into desired chemicals, and in 2023, the company plans on commencing operations at four more facilities. Eight facilities, moreover, are in development. This year operations are expected to start at the Freedom Pines Fuels facility in Georgia, where it will produce sustainable aviation fuel (SAF). Management projects that once the facility is operational, it will produce about 67% of SAF used in the United States. Additionally, the company expects to start operations at a steel mill in Europe and a refinery gas-to-ethanol facility in India during 2023.
In 2022, LanzaTech reported revenue of $37.3 million, about 47% higher than that which it reported in 2021. Management projects sales growing to $80 million to $120 million in 2023. With regard to the bottom of the income statement, management projects achieving adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $80 million in 2024 rising to $250 million in 2025.
A leader in a nascent industry, LanzaTech has the potential to provide significant returns for patient investors. However, a variety of risks surround the company as well, so investors should be mindful of carving out a portion of their portfolios commensurate with their tolerance for risk.
Nio stock is worth the risk
Daniel Foelber (Nio): Nio stock tumbled to a 52-week low on Tuesday and is now down a staggering 87.4% from its all-time high. The electric vehicle (EV) maker isn't expected to report earnings until June. Rather, the sell-off may be attributed market volatility, a weak earnings report by Tesla, and General Motors' announcement that it is ending production of its Chevy Bolt EV and its Chevy Bolt electric utility vehicle (EUV). GM's announcement blindsided investors, especially considering that the Bolt posted record deliveries in the first quarter and pole-vaulted GM to become the No. 2 selling automaker behind Tesla in the U.S. The decision to end the Bolt isn't because GM is lowering its EV investment. Rather, it's because the company is transitioning to new models under its Ultium Platform. GM plans to produce over 400,000 EVs between 2022 and the first half of 2024.
Nio is further along in its EV journey than many U.S. counterparts. The company delivered 31,041 EVs in Q1 2023, bringing its total cumulative deliveries to 320,597 as of March 31, 2023. That puts Nio far ahead of companies like Ford Motor Company or GM.
Nio brings a lot more than EVs to the table. The company has a uniquely integrated strategy that includes charging stations and Power Swap stations. Nio's Power Swap stations swap a fully charged battery into a vehicle, which provides an even faster solution than direct current (DC) fast charging. Nio says that it can provide the swap and electric system checks in under three minutes, putting the dreaded range anxiety conversation to bed.
Nio's portfolio includes a blend of EVs and EUVs. Unlike Tesla and GM, which are both profitable and can use those profits to invest in EVs, Nio is still losing money. Its growth rate has also slowed, which is concerning for Nio especially considering the challenges facing the global car industry as a whole.
In the above chart, you can see that Nio's stock price has fallen dramatically despite its revenue rising severalfold over the last few years. Nio must chart a path toward profitability if it is going to become a sustainable success. However, the good news is the company's losses haven't grown at the same rate as its revenue. With a market cap of $13.4 billion, it is possible the company could 10x over the next 10 years. But Nio could also be a losing investment. For that reason, the best way to approach Nio may be to include it in a basket of EV stocks while also being aware of the risks that come with a younger company in a highly competitive industry.
Joby Aviation stock can soar
Lee Samaha (Joby Aviation): Once the stuff of science fiction novels and movies, electric urban air transport is about to become a reality. The electrical vertical takeoff and landing (eVTOL) and urban air mobility (UAM) market is receiving heavy investment, which is coming from heavyweight aviation players. For example, Raytheon Technologies' corporate venture group has invested in the hybrid-electric propulsion technology company VerdeGo Aero. Honeywell has invested heavily in developing propulsion and avionics, and Boeing has previously invested $450 million in self-flying eVTOL air taxi company Wisk. Meanwhile, Archer Aviation has a partnership with United Airlines, with the latter planning commercial routes to start in 2025.
As the plethora of names above suggests, the eVTOL/UAM market is highly fragmented, with several potential winners, and one of them includes Joby Aviation, whose backers include Toyota and airline Delta Air Lines.
It has heavyweight backing, and Joby's management believes it's ahead of the field in terms of the Federal Aviation Administration (FAA) certification process, having completed the second stage of five stages before its competitors.
Joby's management also believes it's made substantial progress on the third stage (certification plans). Joby is ahead of its field, and while it's extremely tough to predict who the ultimate eVTOL winner will be, the upside potential in the stock is significant. It may suit enterprising investors with risk tolerance.