Predicting the future is difficult, but it’s all part of the daily job of a Wall Street analyst. As part of their job, these analysts publish one-year stock price targets for the companies they track. This is just a given, but it could give investors a good idea of the future potential of the stocks they are looking to buy.
We asked three Motley Fool contributors to highlight a company that analysts believe has huge upside potential based on Wall Street estimates. They came with Twilio (NYSE: TWLO), Reached (NASDAQ: UPST)and Lemonade (NYSE: LMND).
Twilio: implicit increase of 162%
Danny Vena (Twilio): One fact that became very clear during the pandemic was the need for customers to be able to contact the businesses they patronize, anytime, anywhere. The difference between success and failure can depend on that important round-the-clock connection. That’s where Twilio comes in.
The company provides the tools and a cloud-based framework that help developers embed communication capabilities into applications and software, keeping the lines of communication open with their customers. Twilio’s Communications Platform as a Service (CPaaS) is the gold standard, allowing consumers to contact businesses via chat, SMS, phone, video, and more, all without ever leaving the app.
The majority of consumers have probably used Twilio’s services without even knowing it. Its platform handles communications behind the scenes, providing a seamless experience from websites or in-app chats with customer service, handling mundane tasks like resetting a lost or expired password or providing real-time status updates on your rideshare, grocery delivery, restaurant order, and more.
Twilio licenses its cutting-edge solutions so businesses don’t have to spend time and effort developing less effective or more costly communications strategies. As a result, the company’s large recurring revenue stream is the envy of its rivals.
The financial results illustrate the success of the company. Twilio’s revenue grew 65% year-over-year in the first nine months of 2021, although it is not yet profitable as it rushes to secure market share. Twilio’s customer base continues to grow, with 250,000 active customers, an increase of 20%.
The company’s dollar-based net expansion rate reached 131% in the third quarter, meaning its current customers spent 31% more than in the year-ago quarter. This performance extends the company’s unbroken streak, having maintained this metric above 118% every quarter for more than five years.
Twilio generated $1.76 billion in revenue in 2020, a paltry amount compared to its total addressable market (TAM), which management estimates at $79 billion. This helps illustrate the huge opportunity that remains.
Finally, while Twilio’s valuation isn’t cheap by traditional metrics, its price-to-sales ratio has recently fallen to a level not seen since the start of the pandemic. Additionally, Oppenheimer analyst Ittai Kidron maintains a buy rating on Twilio stock with a price target of $550, suggesting an upside for investors of around 162% over the coming year. .
Upstart: A possible hat-trick from here
will heal (Reached): Changing trading conditions have hit Upstart’s stock hard. Since hitting an intraday high of over $400 per share in October, the stock has fallen rapidly, losing more than 70% of its value in about three months. Concerns about how omicron could affect lending volumes and other challenges have investors wondering if the AI-focused lender can justify what had been a massive spike in share price.
However, after the surge, analysts seemed to view this selloff as overdone. In early December, Peter Christiansen, a Citi analyst who covers Upstart, raised his price target to $350 per share. If the stock hits that target, not only would it bring the stock back to within 13% of its all-time high, but it would also translate to a 227% rise in the stock for the year!
Upstart is poised to grow as borrowers with lower FICO scores could turn to Upstart’s AI-powered lending system. Additionally, Upstart recently got into auto lending and is looking to get into the mortgage business. Such moves should generate much higher revenue over time.
Recent quarters have not disappointed. Total revenue of $544 million for the first nine months of 2021 increased 271% compared to the first three quarters of 2020. With operating expenses growing 220% during this period, the company reported net income of more than $76 million in the first three quarters. of 2021, compared to just under $5 million during the same period in 2020.
Investors tumbled on the stock as forecast revenue of $255 million and $265 million for the fourth quarter meant alone 200% mid-term revenue growth. While this rate of increase technically signifies a slowdown, companies rarely sustain such growth rates and current revenue growth remains well into the triple digits.
Despite a massive drop, Upstart stock was still up 92% from year-ago levels. Additionally, its price-to-sales (P/S) ratio of 15 is at its lowest level since last spring and well below September’s 60-sales multiple. Given the growth in revenue, the discounted share price and new business lines, a price of $350 per share seems within the realm of possibility.
Lemonade: A potential gain of 197%
Brian Withers (LMND): Lemonade shareholders have struggled since its initial public offering (IPO) in July 2020. Today, the stock is trading at 52-week lows and nearing its IPO price of $29. But for some Wall Street analysts, the title will not stay long at this price. Analysts have an average price target of around $56, but one analyst is even more bullish. JMP Securities analyst Matthew Carletti has a one-year price target of $95, a potential gain of 197% from the recent price of $32. Let’s see why Carletti might be so bullish on the title.
The company has come a long way since its inception in 2009, when it started offering tenants insurance to its customers. It has since expanded to home, life, pet and even auto insurance. The company is looking to capture young adults who may not have purchased insurance before. Its easy-to-use app and chatbots that help manage simple transactions appeal to young “digital natives” who have grown up with devices as an integral part of their lives. Once these young adults get hooked on Lemonade’s model, they’ll likely add more products over time and move from renters insurance to homeowners insurance.
His strategy is working. Today, only 51% of its annual premiums come from its low-cost rental insurance. Last quarter, it topped $347 million in annual premiums, an 84% year-over-year gain. It increased its customer base by 45% from 1.4 million the previous year. Lemonade’s results are impressive on their own, but what could send the company’s stock soaring is its acquisition of Metromile (NASDAQ:MILE).
Metromile is an auto insurance provider that uses a low monthly subscription rate plus a per kilometer charge. Customers who drive less during the month will see a reduced insurance premium for the next bill. Currently, the auto insurer has a run rate of $114 million in auto premiums, but today only offers its insurance in eight states. Lemonade only offers auto insurance in Illinois. That’s just a small part of the $250 billion auto insurance market in the United States.
Lemonade’s management team estimates that its 1.4 million customers spend more than $1 billion a month on auto rewards. Between Metromile’s licenses to sell in 49 US states and Lemonade’s current customer base, this (well-done) acquisition could be a home run. The acquisition is expected to be completed in the second quarter of 2022.
Today, investors have the opportunity to buy lemonade at more than 80% of its high price. Even though Carletti’s price target is below what the stock will be a year from now, the future looks extremely bright for this insurtech. Investors would do well to buy some stocks today.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end advice service Motley Fool. We are heterogeneous! Challenging 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 wealthier.