After a brutal couple of years, signs are emerging that high-growth small-cap growth stocks may finally get their chance to rally. While mega-cap tech and blue chips soaked up most of the spotlight during the recent rally, many promising yet unprofitable startups were left behind. However, with rates appearing likely to fall and economic storm clouds parting, these long-term innovators could thrive once more.
Though not suited for all investors, adding a small percentage of one’s portfolio to a few visionary small caps could turbocharge overall portfolio returns during the next bull cycle.
Of course, with great reward comes great risk. Small-cap growth stocks are likely to face volatile swings and potentially years of losses before their visions fully play out. My time horizon stretches well beyond the next few quarters. Buying a basket of stocks like these near cyclical lows could deliver outsized long-term profits for those with patience.
Terran Orbital (LLAP)
Terran Orbital (NYSE:LLAP) has been beaten down amidst short-term noise, but is a company with immense long-term potential. This innovative aerospace firm holds an enormous $2.6 billion order backlog that dwarfs its paltry $200 million market cap. Per analysts, fulfilling existing contracts would generate over $1 billion in sales in 2025. Margins should scale considerably by then as well.
Yet, despite the company’s massive order book and visible pathway towards profitability from elite customers, Terran Orbital trades at just 0.2-times its projected 2025 revenue. In my view, Mr. Market seems to be irrationally extrapolating temporary pre-payment delays into a permanent loss of business.
However, Terran already has Rivada’s assurances that their contract remains intact. Additionally, new leadership from legacy aerospace giants at Terran’s helm could deliver operational execution. With shares pricing in virtually no profit or revenue visibility, Terran appears greatly undervalued at current levels.
Luminar Technologies (LAZR)
Luminar Technologies (NASDAQ:LAZR) produces proprietary lidar sensors enabling autonomous vehicles. Like many high-growth tech names, LAZR stock crashed over 92% amidst the recent brutal bear market. However, recent developments suggest a rebound may be brewing.
Luminar’s lidar technology offers superior range, resolution, and capabilities compared to traditional radars or cameras. The company continues building an impressive roster of OEM partners, with Mercedes-Benz (OTCMKTS:MBGYY) among the latest additions. If lidar becomes a standard component for next-gen vehicles this decade, as expected, Luminar seems positioned to see exponential growth.
Make no mistake about it, the path towards profitability remains unclear in the near-term. Macro headwinds have slowed Luminar’s early commercialization efforts as automakers cut back on production. Additionally, Luminar’s latest few quarters saw contract win rates decelerate.
However, the long-term thesis with this stock appears to be very much intact to me. Once supply chains recover and interest rates come down, lidar adoption seems likely to gain strong momentum as EV sales take off. Luminar itself targets an order book expanding to over $60 billion by 2030. It is expected to add over $1 billion in its order book in 2023. If successful execution is seen, Luminar’s current $1.6 billion valuation seems poised to multiply this decade.
Ammo Inc (POWW)
With military conflicts escalating globally, ammunition manufacturers like Ammo Inc. (NASDAQ:POWW) stand ready to ride an elongated supercycle. From my perspective, Ammo Inc. looks poised to capitalize on surging demand and significantly expand its operations.
Before recent geopolitical flare-ups, Ammo already indicated its backlogged orders exceeded $180 million. Following the outbreak of war in Ukraine and tensions across Asia today, we can safely assume government demand has skyrocketed further. Notably, rebuilding depleted inventories could take many years.
Over the long term, some may argue that easing clashes reduces ammunition appetite. However, in my view, restocking initiatives seem likely to proceed regardless, given the clear need for larger reserves.
With over $49.5 million in cash and minimal debt, the company also holds a solid balance sheet to support expansion initiatives. The stock itself retains a reasonable 2.2-times forward sales multiple. Given its positioning to ride secular tailwinds, I believe POWW stock offers substantial upside in the years ahead.
On the date of publication, Omor Ibne Ehsan 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.