High-risk stocks leave a sour taste with most seasoned investors. When someone says a stock is “high risk,” everyone grimaces. High risk? Who wants that? Give me low risk every day of the week! It’s a common perception of high-risk stocks, but it misses one very important truth about financial markets: risk and reward are closely correlated. That is, where there’s risk, there’s also reward.
Does that mean you should go out and form an aggressive portfolio of stocks in hopes of maximizing reward? Not exactly. You should still avoid risky stocks … for the most part.
That said, every once in a while, a stock plump with risk is worth rolling the dice on. Specifically when the odds are favorable and the upside potential is just that compelling.
With that in mind, let’s take a closer look at 10 high-risk stocks which could go either way over the next few years:
High-Risk Stocks: Aurora (ACB)
Why It Could Go Boom: Leading Canadian cannabis producer Aurora (NYSE:ACB) could explode higher over the next few years, if two things happen.
First, the Canadian and global cannabis markets have to start growing concurrently and at a healthy pace, which seems entirely doable considering how policy globally is changing and the amount of new products coming to market.
Second, Aurora has to avoid bankruptcy and improve its profitability profile, which also seems entirely doable with the company’s near-$500 million cash position and recent cost-cutting initiatives.
Why It Could Go Bust: Aurora stock could go bust — and go to zero — if the company doesn’t leverage improving cannabis market dynamics and cost-cutting initiatives to drive the company into profitable territory soon.
The balance sheet can withstand sustained for losses for a little while longer. But not much longer. And if the company doesn’t turn a profit soon, insolvency risks will be magnified, and ACB stock will keep plunging.
Stage Stores (SSI)
Why It Could Go Boom: In 2019, antiquated and depressed department store operator Stage Stores (NYSE:SSI) committed to converting all of its full-price Stage Stores locations into off-price Gordmans. The idea is that off-price physical retail has a future while full-price physical retail does not.
The transition began to bear promising fruit in late 2019. If this transition continues with equally robust momentum in 2020, Stage Stores’ deteriorating revenue and profit trends could turn around in a big way, and SSI stock could turn into a multi-bagger.
Why It Could Go Bust: Point blank, Stage Stores may not have the money to pull off the turnaround. The company had a weaker-than-expected holiday season. This pressured what was an already significantly stressed balance sheet. Now, amid the coronavirus pandemic, the company has been forced to close all of its stores. This only worsened Stage Stores’ financial straits.
Coming out of this crisis, Stage Stores may not have the capital necessary to keep the lights on, let alone pull off hundreds of off-price store conversions. If they don’t, bankruptcy becomes a real option for this depressed retailer.
High-Risk Stocks: Luckin Coffee (LK)
Why It Could Go Boom: Chinese retail coffee house operator Luckin Coffee (NYSE:LK) is what growth stories are made of. The so-called Starbucks of China operated less than a dozen coffee houses in China by 2017’s end. Today, Luckin’s coffee flows through more than 4,500 stores!
If Luckin’s robust growth continues — and if Chinese consumers increase their coffee consumption — then Luckin could sustain its huge growth numbers for several years. If it does, LK stock will soar.
Why It Could Go Bust: Let’s not forget, Luckin overstated its transaction volume by about 70% in 2019, meaning its red-hot growth narrative isn’t as hot as the Street believed. Luckin now has two big problems: legal problems and credibility problems.
On the legal front, lawsuits will come down against Luckin, and the company may not have the financial resources to deal with all those lawsuits and remain solvent. Even if it does, the company will come out the other side with a huge credibility problem.
It will take a long time before investors trust Luckin’s numbers again (if they ever do). This lack of trust could weigh on the stock for the next few quarters, even if lawsuits don’t drag the stock to the graveyard.
Bed Bath & Beyond (BBBY)
Under his leadership, Bed Bath & Beyond could execute an omnichannel-commerce-powered turnaround over the next few years, similar to the one that Target executed over the past few years.
That turnaround propelled huge gains in Target’s stock. And it wasn’t priced for bankruptcy. Bed Bath & Beyond stock is. Thus, a Triton-led turnaround in Bed Bath & Beyond over the next few years could propel enormous gains in BBBY’s stock.
Why It Could Go Bust: The coronavirus pandemic has put tremendous pressure on retailers of all shapes and sizes. Bed Bath & Beyond is no exception.
The company was already cash-strapped to pull off a turnaround before the pandemic. Now, Bed Bath & Beyond is more cash-strapped than ever before. That doesn’t bode well for the company’s chances to successfully pull off a 2020 turnaround.
If Triton doesn’t pull of this turnaround soon, then bankruptcy will become a real risk for Bed Bath & Beyond in late 2020 or early 2021.
High-Risk Stocks: New Age Beverages (NBEV)
Why It Could Go Boom: The fundamentals supporting New Age Beverages (NASDAQ:NBEV) could meaningfully improve in 2020. Demand trends could improve in a big way as the company’s increasingly relevant drink portfolio of low-calorie, organic drinks gains wider national distribution. Think partnerships with the likes of Circle K, 7-Eleven and Walmart (NYSE:WMT).
Margin trends could simultaneously improve with scale and reduced reliance on marketing spend. If so, New Age Beverages’ profits could trend up in a big way this year. If they do, NBEV stock will take off like a rocket ship.
Why It Could Go Bust: The global beverage market is a tough one. It’s riddled with fickle demand, very little brand loyalty and a ton of reliance on distribution.
In that tough market, New Age is one of its smaller, less-established players. Management knows they have to spend big to grow big. If the aforementioned distribution partnerships don’t pan out, then spending growth will continue to outpace revenue growth, and New Age’s profit trends will remain depressed.
If that happens, NBEV stock will remain similarly depressed.
Why It Could Go Boom: The conventional wisdom on Wall Street is that physical video game retailer GameStop (NYSE:GME) is doomed to follow in the footsteps of Blockbuster. But that may not happen if the company successfully crafts a niche for itself in hardware and digital software.
If the company can do that, then GameStop will have enormous upside potential over the next decade as the video game market booms alongside next-generation technological advancements, like 5G and AR/VR.
Why It Could Go Bust: Of course, GameStop could also end up just like Blockbuster. The invention of cloud gaming may altogether eliminate hardware video game sales, outside of accessories such as controllers and headsets.
That’s a tiny market, and not one that can sustain GameStop’s current expense base. Also, the pivot to digital could run into some obstacles, mostly related to competition. If the physical business continues to decline and its digital business stalls, GameStop’s stock price will wither away.
High-Risk Stocks: Jumia (JMIA)
Why It Could go Boom: The last frontier of the global e-commerce revolution is Africa, which houses about 15% of the world’s population yet accounts for less than 1% of global e-commerce sales.
Jumia (NYSE:JMIA) is trying to be the Amazon (NASDAQ:AMZN) of Africa. If they succeed in this mission, and leverage native logistics to turn into the backbone of Africa’s e-commerce market, then the company has tremendous revenue and profit growth potential over the next decade.
Inevitably, all of that growth will power JMIA stock higher.
Why It Could Go Bust: It remains to be seen whether or not the Africa e-commerce market is actually ready to boom. It also remains to be seen whether Jumia has what it takes to be the Amazon of Africa. Consequently, there’s simply a lot of unknowns here. So long as those unknowns stick around, JMIA stock will likely remain under pressure.
Why It Could Go Boom: Household robotics company iRobot (NASDAQ:IRBT) — best know for its robotic vacuum cleaning line under the Roomba brand — is a pure-play on the household robotics revolution.
If this revolution kicks into second-gear in the 2020s, and every household across America adopts a robotic vacuum cleaner, then iRobot’s growth trajectory will soar in coming years. It’s also worth noting that innovative product launches, such as a robotic lawnmower, could help supercharge the company’s growth narrative.
Suppose iRobot does sell a lot of robotic vacuum cleaners and lawnmowers over the next three to five years. If so, beaten-up IRBT stock could rebound by more than 100% to its all-time highs.
Why It Could Go Bust: Robotic vacuums may ultimately prove to be a niche market. Robotic lawnmowers, too. And all household robotics for that matter. If so, iRobot won’t sell a lot of product over the next several years. Any product the company does sell, will have to be discounted to compete in what has become a crowded market. Gross margins will get whacked and profit trends will remain depressed.
If all that happens, then IRBT stock will remain a bust.
High-Risk Stocks: Express (EXPR)
Why It Could Go Boom: A newly unveiled turnaround plan lays the groundwork for Express (NYSE:EXPR) to become a slimmer, more profitable retailer over the next few years.
Specifically, in the early 2020s, management is aiming to cut the store base, reduce operating expenses, double-down on the digital business and rationalize the product SKU to be more relevant. In so doing, management hopes to turn Express into a smaller, more profitable and sustainable retailer.
That retailer will come with a far higher stock price than the Express of today fetches.
Why It Could Go Bust: If the turnaround plan doesn’t work, the graveyard could be Express’ next stop.
The company has a strong balance sheet. But if it can’t turn a profit or grow sales, then that strong balance sheet will weaken over time. That’s especially true since the company is pouring resources into this turnaround. If the turnaround doesn’t yield meaningfully positive results, Express will have less financial firepower to deploy at additional changes.
All in all, then, if Express can’t turn into a slimmer, more profitable retailer over the next few years, the company may join a long list of retailers who have gone under since 2010.
Why It Could Go Boom: Interestingly enough, Groupon (NASDAQ:GRPN) made the perfect pivot at the perfectly wrong time.
In late February, the company announced that it was going to wean off of product-driven promotions to rely more heavily on experience-driven promotions. That’s the right move. But, less than a month later, the whole world shut down thanks to Covid-19. In that shutdown, experience-driven promotions became worthless.
If the Covid-19 storm passes soon, and Groupon weathers it without declaring bankruptcy, then this company could leverage its experience-driven pivot to drive a huge second-half rebound in revenues and profits. That rebound would result in huge gains for GRPN stock.
Why it Could go Bust: Groupon may not make it to the second-half of 2020 to see its experience-driven pivot through to the end.
That is, the company’s financial resources may get sapped by the coronavirus pandemic, and force the company to shut its doors. Even if that doesn’t happen, there’s a risk that the hit to the experience economy in the second-half of 2020 will weigh on Groupon’s business.
Either way, the path forward for Groupon is littered with risks.
To sum it up, these are 10 high-risk stocks could go either boom or bust in the next few years:
- Stage Stores
- Luckin Coffee
- Bed Bath & Beyond
- New Age Beverages
Luke Lango is a Markets Analyst for InvestorPlace. He has been professionally analyzing stocks for several years, previously working at various hedge funds and currently running his own investment fund in San Diego. A Caltech graduate, Luke has consistently been recognized as one of the best stock pickers in the world by various other analysts and platforms, and has developed a reputation for leveraging his technology background to identify growth stocks that deliver outstanding returns. Luke is also the founder of Fantastic, a social discovery company backed by an LA-based internet venture firm. As of this writing, he was long LK and AMZN.