These high-risk stocks seem worth the stretch if you’re OK with volatility.
The stock market as a whole continues to sit near its record highs. However, certain more speculative areas of the market have gotten shellacked. Special-purpose acquisition companies, or SPACs, cloud software firms and cryptocurrencies are among the assets that plunged as the market closed out 2021. As such, some investors are looking to move capital into high-risk, high-reward stocks thanks to the big drops in share prices for these formerly high-flying investments. Just because a stock is down 50% or more doesn’t necessarily make it a good buy, though. Some prudence must be applied; a company must have a viable business model and solid prospects going forward to recover from a steep decline. These seven high-risk stocks, while down sharply, could offer daring investors tremendous returns in 2022.
Bark Inc. (ticker: BARK)
Bark is a consumer products company focused on the pet market. The company’s original claim to fame was its Barkbox subscription product. For a monthly fee, Barkbox would send subscribers a package full of dog toys and other treats. This business took off during the pandemic as people adopted pets at record rates. However, Bark didn’t reach critical mass off the toy product, and some analysts labeled the toy service as a fad or gimmick. Bark, a former SPAC, has plunged from almost $16 to about $4.60 per share over the past year. But this dog could have a new trick in store. Bark is rolling out a subscription product for dog food, dubbed Bark Eats, which would greatly broaden the company’s addressable market and help it reach profitability. The company has a strong brand and massive returns on advertising spend as measured by long-term customer value. If Bark can broaden its model from just pet toys to food and wellness products, shares could be poised for a swift comeback.
StoneCo Ltd. (STNE)
Next among the top high-risk investments to consider is StoneCo, a leading Brazilian payments and fintech company. It primarily focuses on providing merchant services to small- and medium-sized businesses. The company enjoyed an incredible run during the pandemic as Brazilian shops rushed to provide contactless payments options and e-commerce offerings. StoneCo stock soared, and the fact that Berkshire Hathaway Inc. (BRK.B, BRK.A) was among its investors gave an added boost of confidence. In 2021, however, everything crashed. Brazil’s economy stumbled amid a massive rate-hiking effort by the local central bank. The political system experienced chaos. StoneCo, for its part, was hit by a security issue and it also ran into credit quality concerns amid the economic upheaval in Brazil. Add it all up, and StoneCo sank from a high of $95 to just $14. The core payments business is continuing to gain new merchants, however. If management can get the rest of the company back on track, shares could double off the lows.
Spire Global Inc. (SPIR)
Space stocks have crashed back to earth. Big names such as space tourism company Virgin Galactic Holdings Inc. (SPCE) are trading near 52-week lows and it’s pure carnage for smaller space firms. Spire, a former SPAC, is one such company. The stock hit $19.50 at one point but now sells for less than $3. The company offers space observation data and services. Namely, it build satellites, has a third party launch them into orbit, then it tracks items of interest back on earth. Customers include government agencies and private industries such as agriculture and mining that need to monitor field operations. The company is already generating meaningful revenues; it produced $9.6 million in revenue last quarter, which was up 33% year over year. The company’s annualized recurring revenue topped $45 million. There’s already a real business here and the government contracting business in particular should be a durable relationship. With a turn in market sentiment, Spire could launch once again.
Planet Labs PBC (PL)
Spire is hardly the only beaten-down space name. Planet Labs is another interesting pick. Like Spire, it offers earth observation services. It has a large fleet of operating satellites, currently numbering more than 200. The company is already generating more than $100 million in annual revenues, while enjoying enviable 62% gross margins on its product offering. Importantly, 90% of its revenues are recurring, meaning that once the company lands a client, it tends to enjoy a steady relationship. The company has a broad revenue base with no single category accounting for more than 25% of total revenues. Its services include mapping, agriculture, defense and civil uses. Planet Lab plans to expand its data offering to new industries like forestry, energy and insurance in coming years, and it will use mergers to build out its platform. Planet Lab isn’t as out-of-favor as Spire; PL stock is going for around $5.50 per share. Nonetheless, that’s a solid discount from the opening $10 SPAC price.
Tilray Inc. (TLRY)
Tilray has been one of the worst-performing cannabis stocks out there. Since it peaked around $180 per share during a short squeeze in 2018, the stock has lost 96% of its value. The company was too early to the Canadian marijuana market and saw its operating results bleed red during an historic oversupply of cannabis. However, the Canadian market is starting to consolidate, led in part by Tilray’s merger with fellow marijuana producer Aphria. Tilray has also rapidly expanded into international markets such as Germany while making pushes into adjacent verticals such as craft beer and CBD beverages. Add it all up, and Tilray’s turnaround plan is bearing fruit. The company announced quarterly results this week and surprised analysts with a net profit. That’s an awfully rare feat in the marijuana industry. The company’s cost-cutting efforts post-Aphria merger are ahead of schedule and margins are on the rise. While Tilray has a troubled past, it appears a new era has begun for Canada’s cannabis leader.
Avalara Inc. (AVLR)
Avalara is a software-as-a-service company focused on tax compliance. It’s not the most glamorous of niches, but it’s a highly valuable service. E-commerce companies rely on Avalara to automatically tabulate amounts owed across thousands of distinct city, county and state tax codes around the country. Avalara’s software seamlessly charges the correct tax rate for each product across each jurisdiction. It doesn’t just handle straight sales tax, it also gets the corner cases for things such as groceries and liquor which have their own quirks. The company’s software also keeps track of tax data and helps with the accounting and back office functions in that area. Recent investments and acquisitions have Avalara expanding into cross-border commerce among other fields. The company’s stock has been a huge winner over the past few years, but shares have slumped from $190 to $120 during the recent plunge in growth stocks. This could be an opportune entry point.
Dutch Bros Inc. (BROS)
Dutch Bros is a small, fast-growing coffee and cold drinks chain. The company is particularly popular with millennials and Generation Z consumers thanks to its sugary and colorful drink offerings. While Starbucks Corp.’s (SBUX) grip on middle-aged customers shows no signs of letting up, Dutch Bros is making a play for the TikTok crowd. Dutch Bros completed its initial public offering in September and shares quickly spiked from its IPO price of $23 to highs of more than $81 per share. With the collapse of growth stocks, however, risky stocks like BROS were hammered, and Dutch Bros retreated back to the $40 range. Valuation is still a question mark; the company trades at a triple-digit forward price-earnings ratio. However, revenues are growing at nearly 50% year over year and the company plans to grow its store base from 500 to at least 4,000 in coming years. If Dutch Bros’ cult appeal holds as it grows a national footprint, today’s sub-$8 billion market capitalization could be a bargain.
7 high-risk stocks worth the volatility:
— Bark Inc. (BARK)
— StoneCo Ltd. (STNE)
— Spire Global Inc. (SPIR)
— Planet Labs PBC (PL)
— Tilray Inc. (TLRY)
— Avalara Inc. (AVLR)
— Dutch Bros Inc. (BROS)
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