A common misconception among retail investors is that high-risk stocks are bad stocks because they are, well, risky.

Sure, that’s true. Indeed, it’s trivial. High-risk stocks are risky. But, in financial markets, risk and reward are tightly correlated. So high-risk stocks, also tend to be high-reward stocks. And oftentimes, Wall Street thinks that the “high-reward” part is more compelling than the “high-risk” part.

When that happens, high-risk stocks defy conventional wisdom, ignore their prevailing risks and instead charge higher.

This dynamic has happened quite a bit over the past few months, as the broader markets have rebounded sharply from the novel coronavirus selloff in March. In essence, most investors on Wall Street are positioning for a “risk-on” trade, on the idea that today’s risks will blow over and tomorrow’s rewards will be quite huge.

Against that backdrop, high-risk stocks have soared.

Which ones in particular? And are these high-risk stocks worth buying on the heels of their recent mega-rallies?

To answer those questions, let’s take a deeper look at these 10 high-risk stocks flexing on the market:

• Inovio (NASDAQ:INO)
• Blue Apron (NYSE:APRN)
• Shopify (NYSE:SHOP)
• Peloton (NASDAQ:PTON)
• Novavax (NASDAQ:NVAX)
• Wayfair (NYSE:W)
• Nikola (NASDAQ:NKLA)
• Overstock.com (NASDAQ:OSTK)
• Lululemon (NASDAQ:LULU)
• Zoom (NYSE:ZM)

High-Risk Stocks Flexing on the Market: Inovio (INO)

The rally in Inovio stock in 2020 has been nothing short of jaw-dropping. Year-to-date, INO stock is up 750%.

Of course, the catalyst is that the clinical-stage, DNA medicine company has emerged as one of the leaders when it comes to developing a Covid-19 vaccine. Still, the pathway towards turning Inovio’s Covid-19 vaccine candidate into a widely used vaccine is long and hard, and even if the vaccine does pass all the trials, there’s still a ton of competition in the marketplace (about 160 vaccine candidates, to be exact) and the financial upside potential here lacks clarity.

Wall Street couldn’t care, though. INO stock has shrugged off all those risks in 2020. Instead, this stock has very simply traced the news flow surrounding the company’s Covid-19 vaccine. The better that news flow, the higher INO stock goes.

Will this continue? I’m unsure. Right now, all Covid-19 vaccine stocks are on fire. But not everyone will be successful at the end of the day. And that’s a risk I’m simply not comfortable with at this point in time.

Blue Apron (APRN)

Another high-risk stock that has surged higher in 2020 because of the Covid-19 pandemic is Blue Apron.

The meal-kit maker was on its way out until the coronavirus pandemic arrived. Then, with restaurants shut down across the globe and consumers fearful of going grocery shopping, Blue Apron saw demand for its meal-kit delivery services soar in March and April. APRN stock soared, too.

Year-to-date, APRN stock is up 60%.

And that’s despite this company having some serious problems. The customer base and revenues have been on a steady decline for several years. Gross margins are weak. The operating expense base is bloated. The company has yet to turn a profit. And, until recently, APRN stock has been one of the worst-performing stocks in the history of Wall Street.

Will APRN stock continue to ignore these risks? I think so. All of those risks were pre-Covid-19 risks. But the world has changed since Covid-19 emerged, and for the better of Blue Apron. The company’s fundamentals will meaningfully improve over the next few months. As they do, APRN stock should stay in rally mode.

Shopify (SHOP)

It’s weird to put a super high-quality growth stock like Shopify on a list of high-risk stocks. But we cannot ignore the obvious. Given its super stretched valuation, SHOP stock is a high-risk stock.

Shares of the e-commerce solution provider have risen 130% year-to-date. Shopify stock now trades at 60-times sales, 1,000-times cash flow and 5,000-times forward earnings.

You really can’t get a much bigger valuation than that.

And yet, Wall Street really couldn’t care less. Shopify stock has forever featured a huge valuation. The stock’s five-year-average sales multiple is 20 — about ten-fold that of the index’s sales multiple. Yet, SHOP stock has consistently defied valuation standards, and is now up about 2,500% over the past five years.

Will SHOP stock sustain this huge rally? In the long run, of course. This company is the highly scalable and irreplaceable backbone of the future of retail. As such, it will grow revenues and profits by leaps and bounds over the next decade. That huge growth will power enormous gains in SHOP stock. But, here and now, the valuation is really stretched. And within the next few months, I wouldn’t be surprised to see the stock succumb to some form of valuation pressure.

Peloton (PTON)

Peloton stock has been on fire in 2020.

As consumers have practiced social distancing and gyms have closed, the workout-from-home trend has gained significant momentum. Demand for Peloton bikes has soared. And PTON has doubled.

On one hand, this makes complete sense. After all, pre-Covid-19, I was a frequent gym goer. Now, even though gyms are reopening, I’m hesitant. And I’m not alone. Only one-quarter of frequent gym goers feel safe going back to the gym. Some of us will buy Peloton bikes in lieu of going to the gym.

On the other hand, the rally seems overdone. Gyms will reopen. Consumer confidence will rebound. A Covid-19 vaccine will be released. And workout life for fitness enthusiasts will normalize. So this Peloton demand boost should be short-lived.

Will PTON stock keep ignoring these risks and keep powering higher? For the meantime, yes. There’s enough fear in the market right now with respect to Covid-19 permanently changing workout habits that PTON stock will keep pushing higher. But, soon enough, the market will realize that workout habits have not permanently changed. As workout habits normalize in 2021, PTON stock could be due for a world of hurt.

Novavax (NVAX)

Much like Inovio, Novavax is another early-stage bio-pharmaceutical company which has caught fire in 2020 as the company has emerged as a leader in developing a Covid-19 vaccine.

NVAX stock is up a jaw-dropping 1,800% year-to-date.

But, also much like Inovio, Novavax has some very big risks. Its Covid-19 vaccine is one of more than 20 Covid-19 vaccines in human trials. The company is less well-capitalized than many peers in this space. There is a lack of visibility as to when a vaccine will be approved, if Novavax’s vaccine will make it through trials and the potential financial implications of a Covid-19 vaccine.

Wall Street doesn’t seem to care … for now.

But Covid-19 obsession will likely fade over the next few months and quarters. Concurrently, Novavax could be hit with any number of negative catalysts, including negative trial data. The combination of these risks implies that the “high-risk” part of NVAX stock outweighs the “high-reward” part, especially on the heels of such an enormous 2020 rally.

Wayfair (W)

Wayfair has never struck a profit. And Wall Street doesn’t expect the furniture e-retailer to strike a profit anytime soon.

But, because the company has reported huge growth on the back of the Covid-19 pandemic dramatically accelerating the shift towards e-commerce, Wayfair stock has risen 125% year-to-date to all time highs.

W stock now trades at 60-times earnings … that are three years out.

Needless to say, there are huge valuation risks with Wayfair stock. There are also risks that today’s accelerated e-commerce demand dies down as the physical economy reopens over the next few months.

But Wayfair stock has and will continue to ignore these risks, because the long-term growth narrative here is compelling.

So long as consumers continue to migrate to online shopping, and so long as Wayfair maintains its leadership position in the furniture e-retail vertical, this company will grow revenues at a robust pace over the next few years. Huge growth will drive positive operating leverage, and eventual marginal profit production, which will provide support for higher Wayfair stock prices in the future.

Nikola (NKLA)

Hyped up as the “Tesla of the trucking world,” next-gen truck maker Nikola has made a staggering debut on Wall Street in 2020.

Since a reverse merger brought the company public in early June, NKLA stock has more than doubled, on optimism that the company’s hydrogen and electric delivery trucks will significantly disrupt the U.S. and European logistics transportation markets.

Nikola now has a market cap of $25 billion. And the company has zero revenues. Needless to say, valuation risks with respect to NKLA stock are quite large.

Will these valuation risks keep NKLA stock from grinding higher?

I don’t think so.

This is a $100 billion company in the making. Sure, it’s going to take a long time for Nikola to turn into its future self. But the market will have patience with this name, much like they had patience with Tesla, because the next-gen vehicle megatrend is just so strong that no one wants to be caught sitting on the sidelines.

Overstock.com (OSTK)

Once considered the laughing stock of an otherwise strong e-commerce sector, Overstock.com has staged an impressive turnaround in 2020 thanks to the Covid-19 pandemic accelerating e-commerce trends.

The company’s retail sales growth rate has gone from down 20% in 2019, to up more than 120% in April and May. Alongside that huge reversal, OSTK has surged.

Year-to-date, shares are up about 300%.

But, pre-Covid-19, this was a wildly unprofitable company, with declining sales and a weakening balance sheet. It’s easy to say, then, that OSTK stock will give back all of its gain once Covid-19 hysteria fades, and the world normalizes.

But that’s not how things will play out.

Sure, Covid-19 hysteria will fade and the world will normalize. But in the meantime, it has provided a lifeboat to Overstock.com, introducing a new swath of consumers to an Overstock.com platform that has been overhauled over the past few quarters to be much more meaningful and relevant. Many of these consumers will like what they have found on the platform, and will turn into long-term customers.

From this perspective, Overstock.com now has a loyal customer base from which to sustain steady and strong growth alongside the booming e-commerce market over the next few years. Such growth will keep the rally in OSTK stock alive.

Lululemon (LULU)

As was the case with Shopify, it feels weird to put a high-quality growth stock like Lululemon on this list of high-risk stocks.

But given the stock’s valuation and the macroeconomic backdrop, LULU stock fits into the high-risk stocks category today.

The valuation on LULU stock — 10-times sales, 60-times cash flow and 70-times forward earnings — is as extended as it has ever been. Yet, Covid-19 is killing consumer discretionary spending. Sure, consumer spending on clothes rebounded meaningfully in May. But it was still down more than 60% year-over-year.

The big risk, of course, is that a second wave of Covid-19 kills the consumer spending recovery, and retreating spending trends converge on a super-extended valuation to create material weakness in LULU stock.

But I don’t think that will happen.

For the most part, retail shops across the U.S. will continue to open back up over the next few months as consumers and businesses alike get better at keeping the world turning while managing down Covid-19 risks with things like social distancing and mask wearing. As that happens, Lululemon’s growth trends will only improve from here. The extended valuation will find support in the fundamentals. And LULU stock will push higher.

Zoom (ZM)

Last, but not least, on this list of high-risk stocks flexing on the market may be the one which has ignored risks the most: Zoom.

The video teleconferencing company instantly became a Wall Street favorite as the Covid-19 pandemic emerged in February, on the idea that video conferencing becomes ubiquitous and mission-critical in a work-from-home environment.

Year-to-date, ZM stock is up nearly 300%.

This big rally has consistently defied valuation standards. When Zoom’s market cap jumped to $40 billion in March, value investors called it a bubble, since revenues this year are projected to be approximately $1 billion. Then Zoom’s market zoomed to $50 billion in May, and $60 billion early June.

Now, this is a $70 billion company that’s projected to do just $1 billion in revenues this year. That implies huge valuation risks for ZM stock.

Will ZM stock keep defying these valuation risks? For the meantime, perhaps. There’s just so much hype about the era of offices coming to a close, and telework becoming the new norm.

I think that’s true. But I also think that all the upside from this pivot is already priced into Zoom with the market cap above $70 billion. Eventually, valuation risks will rear their ugly head here, and ZM stock will falter.