The allure of penny stocks is twofold: First, it takes relatively little money for an investor to buy hundreds or thousands of shares, and second, small moves higher can translate into windfall profits.

The risk, of course, is that you're more likely to lose all of the money you invest in such stocks than you are to make a big score. Money-losing companies, fly-by-night operators, and pump-and-dump schemers litter the penny-stock universe. And it can be difficult to tell the few legitimate companies trading in that under-$5-a-share range from the rest.

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For that reason, investors are better off sticking with businesses with proven products or services that customers have shown a willingness to buy. You have a better chance of growing your nest egg by aiming for singles and doubles than trying to hit it out of the park with highly speculative penny stocks. 

Axon Enterprise (NASDAQ:AXON), Vista Outdoor (NYSE:VSTO), and XPO Logistics (NYSE:XPO) are far from penny stocks, but they're no longer high flyers either -- at least, not at the moment. Each has fallen 20% or more from its recent high. But each appears likely to get back to generating profitable returns again, and rewarding shareholders accordingly.

Shocked by the fall

Axon Enterprise stunned investors in August when it reported a 91% plunge in earnings for the second quarter to $0.01 per share compared to $0.11 per share in the year-ago period. Much of its difficulty in the quarter could be traced its new Taser 7 conducted electrical weapon -- $6 million worth of difficulty, to be specific.

Half of that hit came because a parts supplier couldn't keep up with demand, costing it $3 million in sales, while the other half was due to a change in design to the stun gun's charger cartridge.

However, Axon management reiterated its full-year guidance forecast for revenue in the $485 million to $495 million range and adjusted EBITDA in the $120 million to $125 million range. That's because it views those sales not as lost, but delayed, and expects they will be booked during the second half of 2019.

Axon Enterprise, of course, dominated the stun gun market, and pretty much owns the law enforcement body camera market too. Its database management system and its new Axon Records report-creation-and-storage business both hold promise to transform how law enforcement documents cases, and archives reports, camera footage, and evidence.

In the wake of that Q2, report, the market has sent Axon shares tumbling to more than 30% below their 52-week high. Yet analysts still expect the company's earnings will grow at an annualized rate of 30% over the next five years, which suggests that this stock slide is an opportunity for investors to open a position in a discounted company with plenty of room to grow.

Still on target for recovery

Vista Outdoor is a risky investment, but not in the way that a penny stock is. The outdoor gear company is in the midst of a significant transformation that included exiting the firearms business. It sold off its Savage Arms division, and will henceforth focus primarily on selling equipment and gear to outdoors enthusiasts. 

It did retain its ammunition unit, which owns some of the best brands in the business like Federal Premium, but when Walmart (NYSE:WMT) announced in September that it would no longer sell handgun ammunition or certain long-gun rounds, it made Vista's recovery path a more difficult slog. The retailer held a 20% share of the ammunition market, and it will cut that by half or more after it narrows the types of stock it's willing to have on its shelves.

Vista's plan is to cut costs, pay down debt, and focus on market segments in which it thinks it can be a leader. It has some 50 brands in its portfolio, including well-known names like Bell, Bushnell, and Camelbak. 

While the company can be seen as a risky play, it has reduced its debt by half from its peak of $1.2 billion, and substantially cut operating costs. This is prime hunting season -- a period when its products should be in peak demand, so with its stock off by more than 60% from its highs, it has great potential to deliver an upside surprise when the next report comes out -- but you still shouldn't overload your portfolio with it.

Keep on trucking

XPO Logistics's share price was crushed earlier this year by the news that would take $600 million worth of its business away from the shipper and move it in-house, with the expectation that the remaining portion would soon be gone too. And XPO had fallen hard already in 2018.

Since then, however, the transportation and logistics company has clawed its way back. Shares are up 58% from that low point, and up nearly 90% from their 52-week nadir. 

The company that was founded with a roll-up-the-industry strategy to bring trucking and logistics under its roof, put that on hold for a while, but recently announced it would resume acquiring companies because it views the opportunities in the space as too ripe to ignore. 

It launched XPO Direct last year to level the playing field upon which e-commerce and traditional retailers compete against Amazon. The service will allow clients to use XPO's vast warehouse network to facilitate two-day delivery to their customers. The program is on track to be a $1 billion business by 2022.

Although XPO Logistics' share price has made large gains in a short time, it still has plenty of opportunity to generate healthy returns for investors from here.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.