These companies all have a sub $5 billion market capitalization with enormous market opportunities. There is a significant risk due to the size of these companies, but this may create an attractive risk/reward scenario for investors. Small-cap companies tend to grow quicker than large-caps and often have more potential to develop into multibaggers.
iRobot (NASDAQ: IRBT) is a technology company that builds robots for consumers and is the oldest and arguably the safest company of the three due to its profitability.
The U.S.-China Trade war was iRobot’s biggest recent threat, forcing the company to up its prices. There have also been concerns surrounding iRobot’s market share. These concerns weighed heavily on the stock price.
The concerns outlined above have been somewhat offset in recent times with prices reduced to pre-tariff levels and a record $1.2 billion in revenue in 2019. In Q2 of 2020, demand remained strong despite macroeconomic headwinds and revenue increased by 8% year-over-year to $279.9 million and an operating profit of $41 million.
The company is led by visionary Colin Angle, who has years of experience in the industry. iRobot has collaborated with Google to create “smart homes” and is launching “iRobot Genius” alongside an app that will help customers to personalize their experience, such as cleaning times and make the robots more intelligent. The robots also map the floors, and this data could make the company a suitor for the likes of Google as an acquisition target.
Virgin Galactic (NYSE: SPCE) is the only pure-play in space tourism, having gone public in 2019. The company has a vast market opportunity not only with space tourism but with point-to-point travel and licensing agreements as well.
Virgin Galactic has only one of the tests required by the FAA remaining before it can begin operations in space. Commercial service is set to commence in Q1 of 2021 with founder Sir Richard Branson taking the first flight if the remaining tests go to plan. To date, Virgin Galactic has received $80 million in deposits with 600 people signing up, and a further 700 signed up through its “One Small Step” initiative. A recent survey stated that there is a total addressable market of 2.4 million people at the current price point of $200,000-$250,000 dollars.
In the last quarter, Virgin Galactic had no revenue and continued to burn cash with a loss of $63 million in Q2 of 2020. However, by its fourth year in commercial service, it plans to run 270 flights a year and generate annual revenue of $590 million.
Virgin Galactic is also collaborating with Rolls-Royce and is in the concept and design phase of its Mach 3 aircraft for point-to-point supersonic travel. This is another market that can be exploited if the company executes on its vision.
Stitch Fix (NASDAQ: SFIX) is an online personal styling service in the United States, with a mission to change the way people find clothes. Customers pay a subscription and receive clothes regularly, which have been picked using extensive data and preferences.
Stitch Fix had been forced to shutter half of its operations in March, causing a backlog in orders. By the end of Q2 , it was operating at two-thirds capacity. Despite operating in a challenging retail sector, Stitch Fix has fared better than much of the retail apparel market which declined by more than 80% in recent months. Revenue declined by 9% to $371.1 million, but management is expecting this to be positive in Q4, and there could be an upside surprise.
Stitch Fix has also expanded its offering to direct buy which tripled quarter over quarter and men and children’s apparel. It is using these offerings to attempt to add to its current client base of 3.4 million users an increase of 9% year-over-year. Stitch Fix should benefit from a shift to online retail sales in the coming years.
It also has a strong balance sheet with no debt and $329 million in cash and cash equivalents. Stitch Fix is undoubtedly one to watch going forward despite the slow growth in the most recent quarter.
MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in companies mentioned above. Read our full disclosure policy here.
Contributing Writer at MyWallSt
Colm's favorite stock is Virgin Galactic as it is representative of his visions for our world in the future.