Every time there is a market-wide event, there are opportunities. We saw it during the coronavirus lockdown crash, during the recovery, and now we are seeing it during earnings season. Exploiting inefficiencies in the market is applicable across all types of companies. However, if your goal is to retire rich, then I believe you will need to consider investing a percentage of your portfolio in growth shares.
While this is higher risk, it doesn't have to be an absolute gamble. However, here are a few quick rules to remember. Growth companies often sell at high price-to-earnings (P/E) multiples. Also, very importantly, do not invest so much you cannot sleep at night. Risk is real, not just a figure, and not everything goes to plan.
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Artificial intelligence is the future
The Brainchip Holdings Ltd (ASX: BRN) share price has risen by 91.17% over the past two weeks. It is the world's largest listed pure play artificial intelligence (AI) company. The company is very close to finishing its first-of-a-kind neuromorphic chip.
This is a company already has an array of products, patents, and groundbreaking technological developments. For example, Brainchip has good market share in the casino industry where it is used in security applications. Another prominent vertical is facial recognition of terror suspects and wanted criminals in airports and subways. With a market capitalisation of $486.50 million, I think Brainchip is a good share to own if you want to retire rich.
Retire rich from fintechs
One of the companies I have been watching for a fair while is Ecofibre Ltd (ASX: EOF). I think the management of this company comprises some pretty astute individuals. It produces non-psychoactive hemp products for distribution in the United States and Australia. The company's primary product is cannabidiol (CBD), used in nutraceutical products. The company reported a 42% increase in top line revenues, and an eye watering 119% increase in net profit after tax (NPAT).
It has three main verticals. Food, nutraceuticals of where it has 51% of the USA pharmacy sales market, and clothing. The clothing vertical shows how astute and agile these managers are. After spending 2 years developing this technology at Thomas Jefferson University and filing patents, the management wisely pivoted from its planned yoga wear products to face masks and neck gaiters. Consequently, they were able to break even in three months.
I feel that management as agile and financially astute as this can easily help you to retire rich. Ecofibre has a market capitalisation of $926.98 million.
A necessary service
CML Group Ltd (ASX: CGR) is one of those companies I think is undervalued by the market. It has a market capitalisation of just $73.97 million. This company provides various forms of short term debtor finance for small businesses. These are short term credit services where assets other than security are used. For example, with invoice finance, the invoice is the security, 80-90% would then be provided in immediate funds, and the credit provider is paid back the principal plus the margin when the invoice is paid.
The company also acquired a software as a service (SaaS) company, Skippr. This platform allows CML to provide greater support to small business, one of its key verticals. It allows their clients to automatically qualify, apply for invoice credit. As well as monitoring payments and invoice tracking. This gives the company the potential to service smaller receivables accounts as the overheads are now far lower.
Foolish Takeaway
These companies have three common traits. In my view these are essential parts of the search for growth shares that can help you retire rich.
First, they are all run by professional managers. Every one of them is a revenue generating company. The financial records show continual growth in sales, cash flow and revenue.
Second, they all have very large addressable markets and have built significant barriers to entry. In the case of these three companies, they are protected either by one of a combination of being the first mover, technological patents, and company secrets.
Third, all of them have a market capitalisation under $1 billion. The actual figure doesn't matter. But when I am reviewing these companies I ask myself; can I see it doubling its share price? For example, Afterpay Ltd (ASX: APT) is now worth the same as Coles Group Ltd (ASX: COL), and more than Woodside Petroleum Limited (ASX: WPL). Personally, I cannot see it doubling again. But I think any of the companies above could do so over a 2 – 3 year timeframe.
