Not too long ago, I wrote an article called “3 Stocks That Could Make You a Millionaire.” Shortly after, I wondered why I wasn’t a millionaire already — probably because I held none of the three stocks I was talking about.
Investing in risky, emerging tech stocks has always been difficult. In my opinion, this risk has been magnified by the ongoing crisis. Even though tech stocks are surging, there’s simply no way to know how long this momentum will last or if a correction is just around the corner. Valuations and investor excitement is simply too high.
However, one of the three stocks I mentioned in my article seems to have escaped this frenzy. Investors have overlooked it because the market opportunity isn’t apparent yet. The market opportunity, in my view, is absolutely immense — which is why I invested $1,000 in the stock last week.
The stock is commercial drone startup Drone Delivery Canada (TSXV: FLT). Here’s why I added it to my portfolio, despite my apprehensions about the tech market.
Market potential
Commercial drones solve the last-mile bottleneck for the logistics industry. These unmanned aerial vehicles can carry spare automotive parts to drivers on highways, deliver critical medicines to remote communities and quicken the pace of delivery for online shops.
Experts expect the market to be worth north of $10 billion by 2022. The opportunity is particularly attractive for e-commerce giants trying to differentiate their delivery services. Amazon, for example, won approval from the Federal Aviation Administration on Aug. 29. Within a few years, the tech giant expects to fulfill orders of packages up to five pounds within 30 minutes.
Half-an-hour delivery could be a game-changer for online shopping across the world. In Canada, Drone Delivery seems to be the market leader.
Size
I’ve had my eye on Drone Delivery Canada since last year. In fact, I’ve been keen on investing since Amazon launched its own drone program. Fortunately, I didn’t invest in it back then. The company has lost 55% of its market value since early-2019, despite the rally in the rest of the tech sector.
At the moment, the firm is worth just north of $120 million. That seems reasonable for a pre-revenue startup with strategic partnerships and proprietary technology. Yesterday, the company successfully completed a test flight of its Candor drone model in Alberta. This means commercialization could be imminent.
If the commercial flights prove viable and Drone Delivery gains a paying client within the next year, the startup could become a unicorn (worth over $1 billion). That would imply immense upside potential.
However, if the company fails, the downside is limited. There’s plenty of demand for a startup with proprietary technology and a talented team. A larger tech firm or private equity company could acquire the firm around the $100 million valuation.
American rival PrecisionHawk is worth between $100 to $500 million, according to Crunchbase data. By comparison, Drone Delivery Canada seems fairly valued at the moment.
Bottom line
Admittedly, Drone Delivery Canada is a risky, micro startup in a nascent industry with plenty of competition. But considering the difference between the market potential ($10 billion) and the company’s size ($120 million) I think this is a risk worth taking.
