Cathie Wood’s ARK family of ETFs might induce a shudder from investors who have seen big losses from those holdings. The market value of flagship Ark Innovation ETF was cut in half over the past year.
That doesn’t mean that Cathie Wood is bad at her job, though. Her funds hold highly disruptive stocks that tend to experience huge gains and losses, and there are some stocks with enormous potential that just became cheaper for long-term investors. Here are three that deserve a look.
UiPath (NYSE: PATH) is a tech stock that’s helping to launch the artificial intelligence revolution. The company’s software platform enables enterprises to automate numerous functions. UiPath assists with the identification of these automation opportunities, participates in the design and implementation of those solutions, and then helps businesses manage those strategies.
Customers have a path to scalable growth and more efficient operations, both of which are prerequisites for business in the competitive, digitally transformed world. Best of all, companies can benefit from automation even if they don’t have the scale or internal expertise to develop that technology in house.
AI technology is a crowded, competitive space these days, but UiPath still excels in its target market. Gartner named UiPath a leader in the robotic process automation market (RPA) industry, which is growing more than 30% annually. UiPath is riding that momentum to revenue growth rates above 50%.
UiPath isn’t profitable, but that’s not a sign of weakness. The company delivered excellent growth in its most recent quarter while burning through less than $8 million in free cash outflows. That’s a drop in the bucket relative to its $220 million in quarterly revenue and $1.8 billion of cash on the balance sheet. The company is wisely investing in growth through marketing, amassing talent, and building corporate infrastructure to support a larger business in the future.
Despite all that, the stock has been on a tremendous downward slide over the past year or so. Its price-to-sales ratio has declined to 13.6 from a previous level above 60.
UiPath stock fell drastically while the business fundamentals remained strong. This is a case of an unsustainable valuation becoming more rational. At this new price level, UiPath stock leaves plenty of room for appreciation over the next decade if it continues to lead the RPA market. Just make sure that you’re ready for more volatility in the short term.
Formerly called Square, Block (NYSE: SQ) is a fintech stock with a strong track record and phenomenal upside potential. But it comes with some risk.
Square launched as a hardware and software payments solution for small businesses that caught on quickly. The company then expanded into personal banking, payments, transfers, and investing with CashApp, which quickly attracted tens of millions of users. Block reported more than $4.5 billion in gross profit last year.
The company appears to be entering a new phase by betting big on blockchain technology. CEO Jack Dorsey has been a vocal supporter of Bitcoin, and the company itself holds more than 8,000 of the digital token. It’s also made acquisitions to gain a foothold in the NFT world.
Block stock has become highly correlated to Bitcoin’s price in recent months. The stock is likely to remain volatile as investors make sense of the value of cryptocurrencies and emerging blockchain technologies. Over the long term, this fintech powerhouse has positioned itself to remain at the forefront of innovation in financial services for both businesses and consumers. Its P/E ratio is above 75 today, so it’s not cheap. Still, that’s a reasonable price to pay for exposure to its long-term potential.
3. CRISPR Therapeutics
If you’re looking to swing for the fences, CRISPR Therapeutics (NASDAQ: CRSP) should be a candidate. It’s one of the largest holdings in Cathie Wood’s ARK Genomic Revolution ETF.
CRISPR is developing gene editing technology that could become the standard for disease treatment. A number of its therapies are in clinical trials that are being studied for treatment of cancer, diabetes, degenerative conditions, and numerous rare conditions.
CRISPR generates some revenue from joint ventures and collaboration with other companies, but none of its products are commercialized right now. The gene editing innovator’s $4.5 billion market cap is based entirely on potential rather than current fundamentals.
There’s a lot that can go wrong here, which is often the case for disruptors. That’s especially true among healthcare and biotechnology stocks, which have to clear steep regulatory and clinical hurdles before they can make any money. Even if all of that goes smoothly, there’s still the prospect of competition — both directly from gene therapy companies and indirectly from alternative treatments.
Nonetheless, there’s a chance that CRISPR Therapeutics will be the market leader of the next generation of serious disease treatment in a decade. Its intellectual property and the rigors of clinical trials could create an enormous economic moat. If this technology becomes the standard of care in any meaningful way, the company’s value should vault way beyond $4.5 billion. But before you buy CRISPR stock, make sure that you’re comfortable with the volatility and risk that come with this sort of speculative investment.
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Ryan Downie owns ARK ETF Trust – ARK Genomic Revolution ETF and Block, Inc. The Motley Fool owns and recommends Bitcoin, Block, Inc., CRISPR Therapeutics, and UiPath Inc. The Motley Fool recommends Gartner. The Motley Fool has a disclosure policy.