Although your odds of investing in successful innovation stocks are slim at best, the returns if you do could be life-changing, akin to buying Amazon under US$1 per share after the Dot-Com Bubble in the early 2000s, which would have earned you about a 21,000 per cent return to date, turning every dollar invested into US$211.
To capitalize on innovations that define their generation, investors will most surely have to buy their stakes when share prices are depressed, the innovations are little known and largely unproven, and the market is clueless about the magnitude of the opportunities, despite tangible value propositions.
To usher you into the weekend, let’s develop this thesis a little further by looking at three microcap stocks whose innovations address global markets:
SHARC Energy Systems
SHARC Energy designs systems that recycle thermal energy from wastewater for heating, cooling and hot water production in commercial, residential and industrial buildings.
The company’s economical and energy-efficient systems, the Piranha and the SHARC, differentiate themselves in the marketplace thanks to an industry leading payback period (which improves the hotter the liquid source), a minimal square footage requirement, remote management, a more than 25-year lifespan, and strong ESG appeal.
Adopting the technology allows clients of any size to reduce power and water use and further their emissions reduction goals, opening SHARC up to the broader energy efficiency devices market, which will reach more than US$1.7 trillion by 2028 according to Emergen Research.
While the company grew revenue by more than 11x from C$0.14 million in 2019 to C$1.59 million in 2023, and posted C$0.8 million in revenue in Q1 2024 alone, representing an exponential expansion in market share, and boasts a C$17 million sales pipeline and C$2.3 million backlog to continue this trend, shareholders have cut the stock by about 90 per cent from its 10-year high.
Hanspaul Panny, SHARC Energy’s chief financial officer, spoke with Stockhouse’s Lyndsay Malchuk about the company’s recent deal for 10 Piranha systems in Massachusetts. Watch the interview here.
SHARC Energy stock (CSE:SHRC) last traded at C$0.20 per share.
Liberty Defense
Our next prospective innovation stock is Liberty Defense, which offers AI-powered weapons detection solutions for areas with high foot traffic, such as airports, stadiums and schools. The company’s flagship HEXWAVE product provides discrete, modular and scalable detection of metallic and non-metallic weapons, while its licensed millimeter-wave-based scanning technology brings higher definition to and solves the shoe removal problem for the airport security market.
Liberty is worth writing about because it is upgrading legacy systems in an essential industry with AI algorithms that minimize human error, identify more threats, and ultimately save more lives compared with its competitors (slide 10).
Backed by a number of high-profile customers – including the Transportation Security Administration, Viken Detection and the Los Alamos National Laboratory – the company expects to grow revenue by almost 100x from 2023 to 2027 (slide 19), as it scales towards profitability and grows into the trillion-dollar global market for concealed weapons detection, a trajectory that has been anything but priced into Liberty Defense stock, which has given back 96.44 per cent over the past five years.
Bill Frain, Liberty Defense’s chief executive officer, spoke with Stockhouse’s Ryan Dhillon about the company’s latest HEXWAVE sale to a major international airport in New York. Watch the interview here.
Liberty Defense stock (TSXV:SCAN) last traded at C$0.17 per share.
Draganfly
Rounding off our trio of innovation stock picks is Draganfly, a designer of drones and accompanying software and AI systems for clients in a diversity of industries, including public safety, agriculture, industrial inspections, security, mapping and surveying.
The company is an emerging player in the US$30 billion unmanned aerial vehicle market, which is expected to triple by the end of the decade, thanks to delivering results for a long list of industry leaders such as Ford, Viacom, Warner Bros., Red Bull, Suncor Energy and Newmont Goldcorp, in addition to active operations in Ukraine across de-mining, surveillance and training.
Despite growing revenue by 4.74x from C$1.38 million in 2019 to C$6.55 million in 2023, and adding another C$1.3 million in Q1 2024, Draganfly’s market penetration is as of yet insufficient to produce its drones profitably. Net income has in fact regressed by more than 100 per cent from -C$11.10 million in 2019 to -C$23.61 million in 2023.
That said, the company benefits from a multi-year pipeline, industry connections, and a 25-year history of innovation (backed by C$4.3 million in cash as of March 31, 2024) that suggest it is well-equipped to add partners, lower operating expenses and build the business towards shareholder value creation.
Cameron Chell, Draganfly’s president and chief executive officer, sat down with Stockhouse’s Ryan Dhillon to shed light on the company’s newest product for government and military markets. Watch the interview here.
Draganfly stock (CSE:DPRO) last traded at C$0.43 per share. The stock has given back 65 per cent year-over-year and 84 per cent over the past five years.
Join the discussion: Find out what everybody’s saying about these innovation-driven microcap stocks on the SHARC Energy Systems Inc., Liberty Defense Holdings Ltd. and Draganfly Inc. Bullboards, and check out Stockhouse’s stock forums and message boards.
This is sponsored content issued on behalf of SHARC Energy Systems Inc., Liberty Defense Holdings Ltd. and Draganfly Inc., please see full disclaimer here.
(Top image is sourced from Draganfly and depicts the company’s heavy lift drone.)