2 top stocks with a good chance of a 10x multiplier

Top stocks with a 10x chance will always have only one thing: some amount of risk. But as a foolish investor, you can certainly control the risk. Precisely when the opportunity is both high and attractive and slightly higher than the potential disadvantage.

For me, there are currently two exciting names that can do a 10-fold: Innovative industrial properties (WKN: A2DGXH) and AxonEnterprise (WKN: A2DPZU). Let’s look at the overall packages and what makes the odds great in each.

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Axon Enterprise: Top storage for a 10x multiplier?

For me, Axon Enterprise is a top first stock for a potential up 10x. The valuation situation alone is arranged in such a way that the company can grow significantly larger. A market capitalization of 8.6 billion US dollars could quite possibly turn into 86 billion US dollars. According to management estimates, the total market is worth US$52 billion per year. That would mean a price-to-sales ratio of around 1.6. Of course, only if the management manages to earn it in full.

But the net profit is now more important to me than sales. Axon Enterprise generated net income of $51 million on revenue of $286 million last quarter. A net margin of 17.8% may be enough. Management can still scale with increasing cloud and software revenues. In other words, there is still potential for positive surprises.

Let’s just think ahead: Axon Enterprise is a top stock for a potential 10x upside for me, as management should be able to generate $20 billion to $30 billion in sales on its total market many years or decades from now. Internationally, there is still plenty of room for growth. If you manage to achieve a net margin of 17.8% on let’s just say $25 billion in sales, the price-to-earnings ratio would be 19.3 with a market cap of $86 billion. Of course, there is great growth potential for all of this. But I definitely see a realistic path, and the management sees sufficient market potential, oriented towards the long term.

Innovative Industrial Properties: Too!

Also, Innovative Industrial Properties is a contender for a top stock that could be a 10x multiplier for me. Here, too, the low market value of 2.7 billion US dollars is a possible indicator. At US$27 billion, the US REIT would be one of the largest in the real estate investment trusts category. However, it does not seem impossible if the cannabis industry matures into a larger consumption branch in the long term. And management ideally addresses other segments.

At the end of the day, Innovative Industrial Properties is still very, very small with almost 100 different properties. Of course there will be dilution. But overall the rating is very low now. Based on the current share price of $99.25, the dividend yield is 7.3%. The price-FFO ratio is also relatively low around 12. Looking at valuations for the past one or two years, an impromptu tripling of three would be possible if certain risks such as rising interest rates or the threat of vacancies are averted.

Unfortunately, these are potential moves that could slow this top stock down as a potential up 10x. It is crucial that the management now sets the course for further growth and for a sustainable, qualitative portfolio. If it succeeds and growth continues with a long-term orientation, I see a realistic chance of such an achievement here as well. But this too will take time.

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Vincent owns shares in Axon Enterprise and Innovative Industrial Properties. The Motley Fool owns shares of and recommends Axon Enterprise and Innovative Industrial Properties.

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