For those who got in early, Bitcoin has been an amazing investment. For example, had you invested $5,000 in the cryptocurrency five years ago, well before the hype of late 2017, that money would be worth over $100,000 today. That’s a life-changing gain.
Yet looking ahead, I’m not convinced that Bitcoin will deliver the same kind of profits. For starters, there are still plenty of people who are sitting on large losses after buying at the highs and are looking to sell if the price rises. This could limit Bitcoin’s upside. Secondly, regulators all over the world are now cracking down on crypto-assets in a big way, which could also limit upside.
If your goal is to make big profits from financial assets, I believe you’re better off forgetting about Bitcoin and instead, investing your money in smaller growth companies. As small companies grow and their profits rise, their share prices tend to rise as well. This means that, if you pick the right stocks, you could potentially turn £1k into £2k, £10k, or even £20k with a little patience. Just look at online fashion retailer Boohoo – it’s turned £1k into around £8k in just four years.
With that in mind, here’s a look at a smaller growth company I’m backing myself right now.
Under-the-radar video gaming stock
Keywords Studios (LSE: KWS) is an under-the-radar company that specialises in video game support services including game development, functional testing, localisation, art creation, and audio and player support. It’s AIM-listed and currently has a market capitalisation of £836m.
The reason I like Keywords? Video gaming is absolutely huge right now. Believe it or not, the video game industry now brings in more revenue than the film and music industries combined. According to market researcher NewZoo, by 2021, the industry could be worth a staggering $180bn, up from $135bn last year.
Given that KWS serves 23 of the 25 most prominent games companies, including Activision Blizzard (Call of Duty), Electronic Arts (FIFA), and Epic Games (Fortnite), I think it’s the perfect way to get exposure to the video gaming boom. No matter the success of individual games, Keywords should still do well.
It is certainly growing at a rapid speed. For example, over the last three years, revenue has climbed from $58m to $251m, which represents a compound annual growth rate (CAGR) of a stunning 63%. And recent half-year results, issued on 18 September, showed revenue of $153m (up 39% on 2018), which suggests that full-year revenue this year should be well up on last year. Meanwhile, net profit has climbed from $3.4m to $14.9m over the last three years.
Over the last five years, Keywords shares have risen from 143p to around 1,300p, meaning the stock has been an excellent long-term investment. Yet looking at the exciting growth story here and the stock’s reasonable valuation (P/E of 27 using FY2020 earnings forecasts), I believe that it has the potential to keep rising.
With the video gaming industry set to continue growing rapidly in the years ahead, driven by advanced technologies such as 5G and virtual reality, the future for Keywords looks very exciting in my view.
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Edward Sheldon owns shares in Keywords Studios and Boohoo Group. The Motley Fool UK has recommended boohoo group and Keywords Studios. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.