You may not realize it, but the broad-based S&P 500 enjoyed a historic bounce from the March 2020 pandemic low. It took less than 17 months for the index to double from its trough, which is pretty incredible when you consider that the average annual total return, including dividends, for the S&P 500 is closer to 11% since the beginning of 1980.
Despite these big gains, select analysts and investment banks see a lot more upside for a small group of hypergrowth companies (those delivering jaw-dropping sales growth). If Wall Street’s loftiest price targets for the following three fast-paced stocks prove accurate, they could soar 216% to 257% in 2022.
Coinbase Global: Implied upside of 216%
The first hypergrowth stock with immense upside this year is cryptocurrency exchange and ecosystem Coinbase Global (NASDAQ:COIN). Analyst Lisa Ellis of MoffettNathanson holds the high-water price target for Coinbase on Wall Street at $600. Should it reach this lofty figure, shareholders would realize a 216% return on their investment, based on where shares ended on Monday, Jan. 31.
If investors take a close look at Coinbase’s operating performance, they’re going to like what they see. As of the end of the third quarter, the number of monthly transacting users had more than tripled from the prior-year period to 7.4 million, with assets on the platform surging to $255 billion from $36 billion, year-over-year. Likewise, the company probably delivered more than $3 billion in net income in 2021.
A number of Wall Street analysts are clearly excited about the long-term prospects of the “Big Two” in crypto, Bitcoin and Ethereum, which account for a significant portion of Coinbase’s exchange-based trading revenue. They’re also intrigued about the company’s ventures beyond crypto exchanges, such as setting up a non-fungible token (NFT) marketplace for users. NFTs are the proof of ownership of digital assets stored on blockchain.
Although cryptocurrencies have handily outperformed the stock market on an aggregate basis over the past couple of years, there’s also a lot of risk that comes with such a lofty price target. For example, competition among crypto exchanges is heating up, not slowing down. Among traditional stock brokerages, commission wars eventually led to the elimination of these fees. It seemingly wouldn’t be difficult for other crypto exchanges to undercut Coinbase’s fees.
Another concern is that the company is almost entirely reliant on external factors instead of innovation to grow. With much of its growth reliant on the performance of Bitcoin and Ethereum, price weakness from the Big Two, or even a loss of interest from the investing community, could threaten to send revenue and profits markedly lower. It happened in 2018, and history suggests it could happen again.
In other words, I wouldn’t expect Coinbase to get anywhere near $600 in 2022.
Plug Power: Implied upside of 257%
Another hypergrowth stock with the potential to skyrocket this year, at least according to one Wall Street analyst, is hydrogen fuel-cell solutions provider Plug Power (NASDAQ:PLUG). Amit Dayal of H.C. Wainwright has Plug hitting a price target of $78, which implies up to 257% upside from where shares closed out January.
You could certainly say that Plug Power finds itself in the right place, at the right time. Most countries are looking for ways to reduce carbon emissions and promote green-energy solutions. This means Plug’s hydrogen fuel-cell solutions for vehicles and individual machines (like forklifts), as well as its hydrogen infrastructure hubs, should be in high demand for many years to come.
What’s really validated the potential for this company is the handful of major partnerships and joint ventures that have been struck since the beginning of 2021. For instance, SK Group took a 10% equity stake in the company in February 2021, with the duo forming a joint venture that’ll focus on putting hydrogen fuel-cell vehicles on the road in numerous Asian markets. Around this time, Plug also formed a joint venture with French automaker Renault, known as Hyvia. Hyvia’s goal is to go after 30% of the light commercial vehicle market in Europe.
Growth expectations for the company have been nothing short of phenomenal. In 2020, Plug Power brought in $337 million in revenue. By 2024, management has forecast $1.7 billion in annual gross billings. This year alone, Wall Street anticipates sales growth will exceed 80%.
Although this might sound like a slam-dunk investment, investors should also consider that Plug Power isn’t yet profitable, and none of the 21 Wall Street analysts covering the company expect it to reach profitability in 2022. In an environment where interest rates are set to rise, unprofitable growth stocks often see their valuation multiples contract. While the technology and partnerships are intriguing, Plug Power has a lot to prove if it’s ever going to hit $78 a share.
Fiverr International: Implied upside of 216%
A third hypergrowth stock with serious upside potential is online services marketplace Fiverr International (NYSE:FVRR). Though Wall Street’s price targets have fluctuated wildly over the past year, the high-water estimate currently calls for Fiverr to hit $270. Should this lofty prognostication come to fruition, it would match Coinbase with a 216% gain.
To some extent, Fiverr’s appeal comes from being in the right place when the coronavirus pandemic hit. It’s a platform that connects freelancers with buyers of their services, and the market for remote workers exploded in the wake of the pandemic. With inflation also soaring, we’re witnessing a hybrid-work environment where remote workers have incredible wage-pricing power.
However, Fiverr’s persistently high sales growth rate is about more than just the pandemic. It’s about providing a differentiated platform. Whereas competing online marketplaces push freelancers to price their services per hour, Fiverr’s freelancers are pricing their services as a package deal. This leads to improved price transparency for buyers, and it’s helped pushed Fiverr’s take rate (what it gets to keep from arranging these deals on its platform) to levels that are well above its competition.
Fiverr is interested in targeting larger businesses with its marketplace, too. The launch of subscription-based Fiverr Business in September 2020 provides bigger companies with project management and collaborative tools that help them use freelancers effectively.
The big concern with Fiverr, similar to Plug Power, is the prospect of rising interest rates and the multiple contraction that typically accompanies a hawkish Federal Reserve. Wall Street’s earnings forecast for 2022 is all over the place, with a consensus profit of $0.47 per share on the heels of 26% sales growth. Even with shares 75% below their all-time high, this works out to a price-to-earnings ratio of 182 and places the company at roughly 8 times projected sales.
Admittedly, this is far less expensive than where it was nearly a year ago, with shares hitting $336 on an intra-day basis. But even its current $85 share price could be deemed pricey given the uncertainty associated with the pandemic and the future of the hybrid-work environment.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.