It’s no secret that penny stocks are extremely volatile and risky investments. Yet every once in a while, one of these tiny businesses can erupt, generating millionaire-making returns for the few investors who saw the growth potential.
A perfect example of this from 1994 is Games Workshop.
The niche tabletop wargaming enterprise joined the London Stock Exchange as a penny stock with a market cap of roughly £40m. Today, the company is worth £4.8bn, generating a 12,285% share price return. And shareholders who reinvested dividends along the way unlock an even more staggering 45,020% total gain.
Just to put this into perspective, a £10,000 initial investment is now worth just over £4.5m!
It goes to show the sort of life-changing gains investors can earn if they find winning businesses early on. And at 6.3p, I think Agronomics (LSE:ANIC) could be the next Games Workshop.
Millionaire-making potential
Agronomics is quite a unique business, operating in a new and emerging industry – cellular agriculture. The firm has invested in a diverse portfolio of 20 young bioengineering companies seeking to manufacture meat, protein, seafood, and dairy products, all within a lab.
That certainly sounds like science fiction. And there’s no denying that convincing the general public to load their shopping cart with lab-grown products will not be an easy task. However, over the next few decades, the cultivated meat market could secure a spot as a leading sector.
With the global population rising, the United Nations has estimated that global food production will need to climb by 60% by 2050 to meet demand. Yet with limited land and water, alongside concerns of global warming, traditional farming alone could struggle to keep up.
As such, Agronomics has projected that by as early as 2040, the cellular agriculture market could be a $200bn industry. And compared to the group’s current £64m market cap, that definitely presents some millionaire-making growth potential.
What to watch
While exciting, investors must consider many other factors beyond growth potential. Digging deeper into the group’s portfolio of early-stage enterprises, most are pre-revenue and could stay that way for many more years to come.
As a result of this lack of reliable cash flow, Agronomics has had to continuously raise capital by issuing shares. And for investors, that’s translated into some considerable dilution. In fact, the number of shares outstanding has almost tripled in the last five years, from around 333m in 2020 to just over a billion today.
That’s certainly not unusual for a penny stock. And if it delivers on its growth expectations, this may ultimately not matter. But right now that’s a big ‘if’.
Cellular agriculture remains a highly experimental industry with enormous technological, regulatory, commercial, and execution risks. Needless to say, that’s quite a lot of points of potential failure. And if another more promising farming solution emerges, investors today could be left with nothing.
The bottom line
Agronomics shares appear to offer investors a diversified way to invest in the brand-new food biotech industry. But in my opinion, it’s far too early to know whether this sector will deliver on its promised revolution. Right now, the risk is just too high. Instead, while I’m keeping this penny stock on my watch list, I’m more interested in other micro-cap opportunities.
