There is a famous Chichewa proverb that says; “M’mera mpoyamba.” It’s literally translated as “catch them young.” Of course, the proverb is related to the formative years of a child. However, this is equally applicable in the world of investment where buying early-stage companies can potentially translate into multibagger stocks in the future. It’s appropriate to say “catch them young and watch them grow.”
This column focuses on three early-stage companies that hold promise. In the next five years, I believe that these companies can make it big backed by good business and positive industry tailwinds. Being early-stage companies, there will be the factor of cash burn and equity dilution. However, as long as business progress remains encouraging, these potential multibagger stocks are worth holding.
In my view, these growth stocks are poised for 5x to 10x returns in five years. I must add that these are high-risk stocks and it’s not advisable to go overboard. However, even a small portfolio allocation can do wonders if revenue and cash flows surge.
Let’s discuss the reasons to be positive on these early-stage companies.
Lithium Americas (LAC)
Lithium Americas (NYSE:LAC) is possibly among the most exciting lithium stocks to consider for the next five years. Recently, the company split into two entities with Lithium Americas focused on assets in North America. LAC stock has declined after the business split and I believe that’s it’s a good opportunity to accumulate.
LAC’s Thacker Pass project has a mine life of 40 years. Further, the Company estimates a net present value of $5.7 billion at $24,000 lithium carbonate pricing. If lithium trends higher in the coming years, the asset will be a cash flow machine.
An important point to note is that General Motors (NYSE:GM) is a strategic partner in the project. Besides committing a total investment of $650 million across two tranches, GM has an offtake agreement with Lithium Americas. This provides clear cash flow visibility once the project commences production. Given the asset valuation and cash flow outlook, I am bullish on LAC delivering multibagger returns.
Solid Power (SLDP)
Solid Power (NASDAQ:SLDP) is working towards the potential commercialization of solid-state batteries. While SLDP stock has plunged year-to-date, I remain bullish on the story.
A big reason to be positive is the fact that Solid Power has a strong backing. The company’s automotive partners include BMW (OTCMKTS:BMWYY) and Ford (NYSE:F). The former is already conducting parallel research and development to accelerate the commercialization.
I must that that the next few quarters are likely to be critical. Solid Power is targeting to deliver EV cells to automotive partners before the end of 2023 for validation testing. Positive results on that front can be a game-changer.
It’s worth noting that Solid Power reported cash and equivalents of $443 million for Q2 2023. For the current year, the Company expects total cash investment of $120 to $140 million. This implies that Solid Power is fully financed for the next 18 to 24 months.
EVgo (EVGO)
EVgo (NASDAQ:EVGO) is another interesting name among early-stage companies that can create immense value. The EV charging infrastructure provider has witnessed stellar growth and I expect the positive momentum to sustain.
For Q2 2023, EVgo reported revenue growth of 457% on a year-over-year basis to $50.6 million. It’s worth noting that the Company has 3,200 stalls under operation or under construction. With new deployments, revenue growth is likely to remain strong.
On the flipside, EVgo reported EBITDA level loses of $10.6 million for the quarter. I however don’t see that as a major concern because the company is still in an early growth stage. With operating leverage, EBITDA losses will narrow.
Further, the addressable market is significant and EVgo is currently focused on expansion in the U.S. Potential European expansion in the coming years can further boost the revenue upside trajectory.
On the date of publication, Faisal Humayun did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
