May 22, 2022

A $1 Stock That May Be One of the Best Current Dip-Buy Opportunities

By Luke Lango

The Nasdaq dropped 5% [last Wednesday], and you know what that means: It’s time to go looking for some opportunities in the rubble.

So, we ran a market scan of the stocks that took the biggest beating yesterday and sorted through the top 50 largest losers.

One name stood out as a particularly compelling dip-buy with some enormous upside potential.

In today’s edition of The Daily 10X, we are going to tell you about that opportunity. It’s a small-cap stock that used to be one of the hottest tech startups in the world, but it’s since fallen out of favor with investors.

After [last Wednesday’s] big plunge, the stock now trades for $1 and is being treated like a bankruptcy situation. But it’s not — and the company is actually growing revenues at a steady 50% clip, with healthy gross margins, a strong balance sheet, and a pretty favorable long-term growth outlook.

In other words, this stock is completely undervalued at current levels and looks ready to rip higher.

Company Overview

The company we’re talking about is Bird Global (BRDS).

Bird is a micromobility company that’s trying to be the “Uber (UBER) for e-scooters and bikes.”

Its core business model centers on ride-sharing, wherein consumers rent Bird-owned e-scooters and bikes for short-haul transportation.

Bird manufactures the scooters and bikes. Every morning, it places them across various busy urban areas. The vehicles are placed in a “locked” position. Then, using the Bird app, a consumer can unlock a vehicle, pay a few bucks to ride for 30 minutes or so, and then leaves the vehicle wherever they are when they’re finished. The vehicle becomes “locked” again and awaits its next user.

Every night, Bird’s fleet managers go around and collect the vehicles to be recharged and maintained overnight. The following morning, they’re placed back on the streets, and the process starts all over again.

Bird generates revenue through its usage-based fee model. The common use cases for Bird vehicles are fun summer bike rides (very popular in beach towns), short-haul delivery, and brief work commutes.

More recently, Bird got into the business of selling its e-scooters and bikes directly for consumers to own. This business, though, is very small (about 10% of revenues). And management is presently deemphasizing it because of its lower margin profile.

Presently, Bird operates about 78,000 vehicles that, in 2021, shuttled people on 40 million different rides. The company makes about $6 in revenue per ride. Last year, revenues were $242 million and are set to grow 50% this year. Gross margins hover around 20%. EBITDA is negative, but EBITDA loss margins are improving.

Bird is worth about $220 million.

The Opportunities

• Micromobility-as-a-service has huge potential, given the large populations concentrated in dense urban areas where: most things are within a few miles of one’s residence; it doesn’t make a ton of sense to own a car; and Uber and Lyft (LYFT) rides can be unnecessarily expensive for such short trips. We know that Bird and other micromobility-as-a-service providers are very popular in certain downtown areas and beach cities. We could see a future where these services are a global urban ubiquity.
• Our personal experience with these Bird scooters is that they’re pretty fun and really efficient.
• Bird is the brand and scale leader in the micromobility market and, as a result, has developed significant brand and scale advantages. At the same time, the company has permits to operate in most major cities and — considering how cities don’t want their streets littered with e-scooters — it’s unlikely new competitors land as many permits as Bird.
• The company is growing very quickly. Revenues rose 48% last quarter, and management is guiding for 50% growth this year.
• Gross margins have been steadily improving, and EBITDA loss margins have been narrowing, illustrating that Bird is executing on its path toward profitability.
• The stock is incredibly cheap, at just 0.7X 2022 estimated sales for sales growth of 50% this year.

The Challenges

• The balance sheet isn’t terribly strong. And at current burn rates, liquidity could become an issue for Bird as early as this summer.
• There are lots of competitors in this space, and while Bird is the leader, there are enough viable competitors in the market to forever put a cap on gross margins.
• This will never be a huge business, as the value prop of micromobility-as-a-service is permanently niche.

How It Could 10X in Value

• Bird Global is going to do about $300 million in sales this year. Analysts expect revenues to basically double in 2023 to $600 million.
• Assuming so, Bird should hit about $1 billion in revenues by 2025-26.
• Further assuming 20% gross margins and 10% operating margins, Bird could be looking at $100 million in profits by 2025-26.
• A 20X price-to-earnings multiple on that implies a 2025 valuation target of $2 billion.

The Final Word

The Nasdaq got crushed [last Wednesday], and now it’s time to go dip-buying. One of the most washed-out stocks in the market right now is Bird Global. Yet, the company is performing with great strength. This dichotomy creates a pretty compelling opportunity. Trading at just 0.7X forward sales for 50% sales growth this year and 100% sales growth next year, BRDS stock is just too cheap to ignore – and cheap enough to warrant a 10X-plus surge over the next three to five years.

Small-cap stocks that can rise 10X over the long run are often volatile. If you are interested in this stock, buy it like a pro by setting strict limit prices.