High-risk, high-return stocks are perhaps the most exciting and intimidating stock market investment. This blog introduces you to five such stocks that have garnered a lot of attention due to their potential for considerable returns, though there is a lot of risk associated with these investments before you dive into them.
A Blunt Investment for the Aggressively Seeking Momentum
High-risk, high-return stocks in the investment world are those that do a lot to entice people who seek large returns. Without a doubt, the promises of great profits are there, but along with them, the high-risk dangers also lurk. In this article, we will uncover what such stocks define, who it is suitable for, and tactics for making sense of the stormy landscape of high-risk investments.
What Are High-Risk, High-Return Stocks?
High-risk, high-return stocks are those that usually have a higher chance of both price volatility and potential loss, but they offer the possibility of extraordinary returns. Often, these are relatively newer or smaller companies with participation in industries that happen to experience rapid change, like technology, biotechnology, or clean energy.
Examples include:
- Start-ups or newly listed companies: The companies can either take off to incredible heights or crash heavily based on early growth, market acceptance, or innovation.
- The company introducing new disruptive technologies: Companies that introduce groundbreaking innovations are sure to offer high returns if its technology becomes market acceptable. They are highly susceptible to failure.
- Commodities and speculative sectors: Energy stocks, mining-related stocks, among others based on commoditized sectors, could witness price volatility based on where the global demand and supply dynamics lie.
Garden Reach Shipbuilders and Engineers Limited
Garden Reach Shipbuilders and Engineers Limited has done fantastically well over the last year, having given back 122% at its peak. It has now corrected by 33% and is currently trading at ₹1,811 per share down from a high of ₹2,710.
These reasons are layered. Sources at Ellara Capital report that a key order the company was expecting in FY24 has been deferred to FY26. ICICI Securities have even downgraded the stock with an aim to sell, citing margin pressures and potential revenue impacts following the Bangladesh crisis. Wealth Mill Securities notes an overall trend of profit booking in defense stocks as their reason for the decline.
Yet, it also presents a great opportunity. The institutional buying has gone up from 3.26% to 3.9%, and the Government of India holds 74% in the company. Order book stands at ₹25,000 crores, six times annual revenue, and management expects 25-30% revenue growth in the next few years.
Motilal Oswal Financial Services Limited
The standout, however, has been Motilal Oswal Financial Services Limited, delivering a pretty impressive return over the last one year at 231%. At the same time, the revenues have also been gradually growing with a CAGR of 31% for the last ten years.
Recent results are impressive, with revenues nearly doubling and profits tripling in the last fiscal year. The firm’s PE ratio is at 16.07, still manageable in comparison to industry standards. Firm has three major business areas: selling own products (mutual funds, portfolio management), distribution of third party products and wealth management which comes on fast growing trends.
However, there is always a risk, especially on the front of taxes, when the issue is F&O related. Volatility on the stock can also be a concern, as it has risen so much in the last couple of months that there is great room for its fall too.
Info Edge India Limited
Another stock is Info Edge India Limited, that has also risen by 30% in the past four months. Here is a company operating Naukri.com, one of the largest recruitment platforms. The entity has been able to maintain operating profit margins at almost 35.6%.
Well-diversified revenue streams in its business segments are doing well for the company. In fact, it has significant growth in IT hiring, which will boost revenues further. Though the stock trades at a very high PE ratio of 152, it is shown resilience and potential growth to take further routes.
However, the risk of a price correction remains, especially since the stock reached an all-time high. Investors should move with caution and note the chances that this risky stock will have volatility.
Zen Technologies Limited
Zen Technologies Ltd has risen 107% over the last year. Recent shareholding pattern in the company has changed after a Qualified Institutional Placement was issued wherein stakes of promoters have decreased and that of institutes are increased.
On the fundamentals front, the revenues are doubling, and profits significantly increase. With an order book of ₹1,158 crores, three times the annual revenue of the company, or to put it from another perspective, the launch of the AI powered products augur well for growth prospects.
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At a PE of 99, it can be inferred that there is an enormous inflow of institutional investment into the company with high prospects. The investor should be aware, however, of the risks inherent here, especially since the stock is trading at an elevated valuation.
Shakti Pumps Limited
It has emerged as the leader in the segment and has seen an enormous rally of 400% over the last year. In fact, most of the growth in the company is from the PM Kusum scheme, wherein it promotes solar pumps to be used in agriculture.
With an order book of ₹2,000 crores and 30% growth potential in the next couple of years ahead, Shakti Pumps seems to be well-placed for future prosperity. The stock trades at a PE of 38.55, still way below the industry average. This provides potential scope for further upward movement.
In fact, the astronomical price rise does raise the fear of correction. Investors will do well to balance the enormous growth potential with risks at these valuations.
Conclusion
High-risk, high-return stocks can be rewarding, but they must be approached with care. The stocks mentioned below are good examples of those showing promise for large returns, but they always hold some risk that needs to be factored in.
While making choices regarding investments, one should not forget that a right investment portfolio will contain fixed-income instruments to minimize the risk. In fact, if you are a customer interested in the fixed income space, StableMoney would offer you competitive interest rates and flexibility for effectively managing investments.