It’s unrealistic to expect early-stage companies to deliver robust margins and cash flows. However, some companies continue to burn cash for an extended period, and it translates into shareholder wealth destruction. A good example of wealth destruction on the back of cash burn is Lucid Group (NASDAQ:LCID) stock from the EV sector. This column discusses what I would classify as pre-EBITDA growth stocks.
To elaborate, these are growth stocks that represent good businesses with positive industry tailwinds. Further, these companies will likely break even at the EBITDA level within the next 12 months. Once operating leverage kicks in, it’s likely that margin expansion will sustain. Therefore, as these companies grow at a healthy pace, EBITDA and cash flows will swell.
Ultimately, the current value of a company is determined by the present value of future cash flows. Therefore, EBITDA margin expansion and cash flow upside translate into the stock trending higher. Let’s discuss three pre-EBITDA growth stocks to buy before they surge higher.
Blink Charging (BLNK)
Among EV charging infrastructure stocks, Blink Charging (NASDAQ:BLNK) looks attractive after a correction of over 50% in the last 12 months. The rally from oversold levels is also likely considering multiple positive catalysts on the business front.
First, for Q1 2024, Blink Charging reported revenue growth of 73% on a year-on-year basis to $37.6 million. With a big addressable market in North America and Europe, healthy revenue growth will likely sustain.
Further, Blink Charging has guided for positive adjusted EBITDA by December 2024. With operating leverage coupled with higher services revenue, it’s likely that margin expansion will sustain in the coming years.
In an important business development, Blink has achieved the “In Process” designation given by the Federal Risk and Authorization Management Program (FedRAMP®) for its EV charging solutions. That takes Blink closer to being a cloud-based EV charging service provider to the U.S. government. These developments will likely translate into a sharp rally for BLNK stock in the coming quarters.
DraftKings (DKNG)
DraftKings (NASDAQ:DKNG) stock has trended higher by 23% in the last 12 months. However, I believe a bigger rally is due as the company achieves EBITDA breakeven.
The first point to note is that DraftKings has a big addressable market for iGaming and online sports betting (OSB) in the U.S. By 2028, the market is expected to be at $30 billion in existing states where the company is operating. The big market size provides headroom for healthy top-line growth in the coming years.
Last year, DraftKings reported an adjusted EBITDA loss of $151 million. For the current year, the online gaming provider is expecting an adjusted EBITDA of $500 million. Further, DraftKings has guided for adjusted EBITDA of $1.4 billion in 2026 and $2.1 billion in 2028.
In May, DraftKings completed the acquisition of Jackpot, a leading digital lottery app in the United States. The acquisition will have an incremental EBITDA impact of $100 to $150 million by 2028. Therefore, the growth and cash flow outlook are robust for the coming years.
Cronos (CRON)
Cronos (NASDAQ:CRON) is a pre-EBITDA growth stock with multibagger returns potential. The cannabis stock has trended higher by 15% year-to-date. However, the best part of the rally is likely to come in the next 24 to 36 months.
For Q1 2024, Cronos reported a healthy revenue growth of 30% on a year-on-year basis to $25.3 million. For the same period, adjusted EBITDA loss narrowed significantly to $10.7 million. I believe adjusted EBITDA breakeven is likely in the next few years.
It’s important to note that Cronos was primarily focused on Canada and Israel. However, in the last two quarters, the company has expanded into Australia, Germany and the United Kingdom. It’s, therefore, likely that revenue growth will accelerate.
At the same time, EBITDA margin improvement is in the cards on the back of cost-cutting and operating leverage. As a matter of fact, Cronos has guided for positive net change in cash for the year. Therefore, with likely EBITDA breakeven and positive industry tailwinds, CRON stock is poised to surge.
On the date of publication, Faisal Humayun 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.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
