A big part of the allure of investing in small and mid-cap stocks is their potential to be worth much more in the future. After all, it's a lot more probable that a company that's only worth a few billion dollars will grow its business enough to double in value than it is for a company that's already worth hundreds of billions. But smaller stocks also come with more risk, as they're often unproven and not well-established businesses.
Ginkgo Bioworks (DNA +3.00%) is a mid-cap company that has some promising long-term growth opportunities. The cell programming specialist can help provide businesses with bioengineered products that can help them become more efficient and provide next-gen products. Uses for its technology include helping healthcare companies develop new drugs, and helping agricultural companies develop crops that are more resistant to disease.
The caveat, however, is that it may take a while before Ginkgo may realize its potential, assuming it does at all. Could investing in this healthcare stock help get your portfolio to $1 million?
NYSE: DNA
Key Data Points
Signing deals with big names
Many businesses have been going to Ginkgo for help with their research and development, as cell engineering can provide unique and quicker solutions for the issues they face. Some of the big healthcare names that have signed deals with Ginkgo include Pfizer, Biogen, Merck, Novo Nordisk, and Bayer.
But Ginkgo can help companies in other industries as well. In recent years, there has been a sharp increase in the number of its active programs.
Image source: Ginkgo's 2023 Investor Day presentation.
Seeing strong returns from this investment could take time
Given the potential for Ginkgo's technology to transform businesses in many industries, there's significant potential for the company in the long run. When it comes to bio-engineered products, this is a market that could be worth trillions. The catch is that it could take decades for the market to get that big.
Image source: Ginkgo company filings.
One challenge for Ginkgo investors is that today, the business isn't anywhere near profitability. While it's promising to have such a large and varied addressable market, to benefit, a company still has to be in strong enough financial shape to be able to capitalize on those opportunities as they come up.
Unfortunately, with losses over the last 12 months totaling $860 million on revenue of $315 million, the company has a long way to go if it's going to prove that it can be a safe long-term investment.
Can Ginkgo Bioworks stock be an investment that gets you to $1 million?
If you were to invest $25,000 into Ginkgo Bioworks stock, you would need it to grow to 40 times its value for your investment to be worth $1 million. That would give it a market cap of approximately $150 billion. That's not an unreasonable size for this company to grow into given the potential in its market. But that comes with many conditions. Prominent among them, it's far from clear that its market opportunities will in fact become massive, nor is it certain that Ginkgo can become a major player in bio-engineered products.
Another important question for retail investors to weigh is whether it would be a good idea to invest $25,000 (or any major share of their portfolios) into a deeply unprofitable business that's counting on opportunities that may be years away from materializing, if they do at all. For most people, Ginkgo isn't an appropriate investment. This is a high-risk, high-potential-reward stock that is only suitable for investors with sufficiently high risk tolerance.
Ginkgo Bioworks does have the potential to generate the sort of growth that would eventually turn it into a 40-bagger -- the type of stock that could help you become a millionaire. But a lot would need to go right for that to happen, and the business faces an uphill battle. Investors shouldn't take any of its potential as a given.
