Best High-Risk, High-Reward Stocks

The stock market has produced generational wealth for some investors. While you can buy stable stocks that offer dividends and have reasonable valuations, some investors prefer to take on more risks for a higher potential reward. High-risk, high-reward stocks can generate sizable returns in a short amount of time, but they can also lead to significant losses if you aren’t careful. Investors with high risk tolerances and long time horizons before retirement may want to consider some of these investments. 

7 Best High-Risk, High-Reward Stocks

Investors looking to increase their potential returns may want to consider these high-risk, high-reward stocks. While the bullish theses for these stocks promise significant potential, it is important to weigh the risks before committing to any of these stocks.

1. Roku Inc. (NASDAQ: ROKU)

Roku makes most of its money from advertisements. CTV Television Network ads grew at an incredible rate during the pandemic and turned Roku into one of the highest-performing stocks from 2020 to 2021. A lofty valuation and decelerating revenue caused shares to crash in 2022. Roku’s revenue has been accelerating lately, as the company posted 10.8% year-over-year revenue growth in the second quarter. It’s a far cry from Roku’s revenue growth numbers during the pandemic, but if the acceleration continues amid a recovering ad market, Roku shares can soar.

2. Shopify Inc. (NYSE: SHOP)

Shopify has a similar trajectory as Roku. The company rewarded long-term investors nicely before and during the pandemic. Shares crashed in 2022 but are up by 58% year to date. Shopify has maintained high revenue growth, including 30.8% year-over-year revenue growth in the second quarter. The company recently sold its logistics division, which will give it more resources to focus on its core business model. Many customers use Shopify’s software to host online stores, and it is difficult to switch away from the platform.

3. CrowdStrike Holdings Inc. (NASDAQ: CRWD)

CrowdStrike is a leading cybersecurity company that is up by 43% year to date. The company has posted exceptional top-line growth, including a 42% year-over-year gain in the first quarter. While the company has a great business model that attracts many clients, valuation remains an issue. CrowdStrike took a step in the right direction with a $491,000 profit in the first quarter. But that number pales in comparison to the company’s $35 billion market cap. The company currently has a forward price-to-earnings (P/E) of 60, which may be a bit much for risk-averse investors. That forward P/E also assumes there aren’t any economic slowdowns. CrowdStrike’s business model seems poised for many years of growth and better profits. However, current investors will be entering this stock at a frothy valuation with macroeconomic concerns.

4. The Trade Desk Inc. (NASDAQ: TTD)

The Trade Desk falls into the same category as CrowdStrike. The company has a solid advertising model and has been profitable for quite some time. But the company has a 540 P/E ratio and is already up by 75% year to date. The stock has a forward P/E of 250 and a price/earnings-to-growth (PEG) ratio of 13.9. Both of those metrics hint at an overvalued stock. If you look beyond the valuation, you will see a stock with reliable double-digit revenue growth and accelerating earnings. The company is profitable and has a bright future, but not every investor may want to buy shares at the current price. 

5. Nvidia Corp. (NASDAQ: NVDA)

Nvidia’s graphics processing unit (GPU) chips have helped the company report astonishing revenue and earnings growth. The company’s recent foray into alternative intelligence (AI) chips fueled more gains for the stock, and the company is doing well. Nvidia’s best AI chips are sold out until 2024, which signals strong demand. The company is profitable and has a profit margin of close to 30%. But Nvidia also has a lofty valuation. Shares trade at a 220 P/E ratio and have almost tripled year to date. Those types of gains and the high valuation make this a risky stock. But the business model is robust for investors with higher risk tolerances and longer time horizons. 

6. Celsius Holdings Inc. (NASDAQ: CELH)

Celsius Holdings is an emerging energy drink company that has soared by more than 3,600% over the past five years. A recent partnership with PepsiCo Inc. is also helping the company reach more consumers. The company recently reported 94.9% year-over-year revenue growth and 517.3% year-over-year net income growth. Celsius Holdings continues to excel, but the stock has a 196 forward P/E ratio. Value investors may balk at this one, but investors who can wait several years and are willing to take risks may end up with significant long-term gains.

7. Tesla Inc. (NASDAQ: TSLA)

Tesla has been a high-risk, high-reward stock since its early days. Shares have more than doubled year to date but are down by roughly 40% from their all-time high. Tesla has delivered high double-digit revenue growth rates over the past few years, and net income has also soared. The company is the top producer of electric vehicles. However, the company’s 70 forward P/E ratio makes it vulnerable. Tesla also happens to be a volatile stock, and any macroeconomic concerns can send shares sharply down. It’s hard to argue with the stock’s past results, but investors have to wonder whether most of the gains are from the past or if the stock has enough room to rally ahead to new heights. 

What is a High-Risk, High-Reward Stock?

A high-risk, high-reward stock is an investment that can significantly outperform the market. These stocks also tend to have notable vulnerabilities, such as an excessive valuation or declining revenue growth. Some of these stocks have high revenue growth but mounting losses.

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Benefits of Investing in High-Risk, High-Reward Stocks

High-risk, high-reward stocks can outperform the market and reward long-term investors. That’s the main benefit these stocks provide. Investors also have the luxury of holding onto stocks and not having to spend as much time in their portfolios, but a buy-and-hold strategy with any stock grants this advantage. People who invest in high-risk, high-reward stocks want to outpace the market.

Disadvantage of Investing in High-Risk, High-Reward Stocks

The main disadvantage of high-risk, high-reward stocks is that these assets can quickly lose value if earnings and macroeconomic factors are unfavorable. It’s possible for these companies to lose value even if they report good earnings. Good isn’t always good enough for investors who buy high-risk, high-reward stocks.

Diversifying Your Portfolio with High-Risk, High-Reward Stocks

Risky stocks can pay off, but some of these stocks yield long-term losses for investors. It’s important to analyze a stock before investing, but the stock itself isn’t the only key factor. Investors should consider their financial objectives, risk tolerances and time horizons before committing to one of these investments. 

Frequently Asked Questions

Best High-Risk, High-Reward Stocks Methodology

The best high-risk, high-reward stocks methodology focuses on investments with high gains in the past or present. These companies often have high valuations, which make them riskier. The high-reward element comes from high top-line growth and a dominant position within the industry.