Cathie Wood's Ark Innovation ETF (ARKK 2.36%) is a one-stop shop for hot growth stocks that have the potential to disrupt their industries and make investors significantly richer in the process. But with hype comes high valuations, and with high valuations comes the risk of sharp declines during bear markets -- like during this year, when the ETF crashed by 68%.

Some of the components of the Ark Innovation fund are now priced at a decent buying point, but others remain fraught with valuation risk or other sources of downside. Let's peek at one of Wood's favorites that's ripe for a (somewhat risky) investment, and then compare it to another one of her stocks that's not quite approachable just yet. 

1. CRISPR Therapeutics

CRISPR Therapeutics (CRSP 1.92%) is a pre-revenue biotech that's making a splash by pioneering cutting-edge therapies created using the company's titular gene-editing technology. Wood is such a fan of the stock that it accounts for just over 4% of the Ark Innovation ETF's holdings, and while it's a speculative play, its shares are cheap enough to make it worth a (small) investment. Here's why.

Without plenty of cash, biotechs can't fund the programs they need to eventually commercialize medicines and generate revenue. At the moment, CRISPR Therapeutics has $1.9 billion in cash, and it only burned around $508 million in the last 12 months. That means it can afford to continue with its research and development activities at their current intensity for at least three years before it'll need to raise money again.

And three years is plenty of time to advance at least a few of its seven pre-clinical immuno-oncology programs into clinical trials. It might also be enough time to get its more advanced projects out the door and onto the market, like its potentially curative gene therapy for sickle cell disease that's being developed jointly with Vertex Pharmaceuticals and is currently in mid-stage trials.

Plus, right now CRISPR has a price-to-book (P/B) ratio of 1.7, which means that its shares are cheaper than those of gene therapy competitors like Bluebird Bio and Intellia Therapeutics, both of which have P/B multiples above three. It might get even cheaper if growth stocks continue to be disfavored in 2023 and beyond, but eventually its shares could see a steep run-up thanks to successes with its pipeline programs. 

Keep in mind that the biotech doesn't need to actually commercialize anything in the next few years to be a good investment. Demonstrating sufficient progress with a couple of its existing projects will likely be more than enough to deliver decent returns. Of course, failed clinical trials are a major risk for shareholders, but with so much money in the bank and a powerful collaborator like Vertex on CRISPR's side, it's a near certainty that the company can survive a few stumbles.

2. Teladoc Health

The telehealth leader Teladoc Health (TDOC 0.21%) is another Cathie Wood pick, and it's weighted at 4.3% of the Ark Innovation portfolio, making it one of the largest investments there. The appeal of Teladoc is clear; telemedicine is going to be a major growth area within healthcare over the coming years, and the convenience of having a doctor a phone call away is tough to beat. But whereas CRISPR Therapeutics has enough upside in its near future to warrant a purchase at its current valuation, the opposite is true for Teladoc.

Its P/B multiple is surprisingly cheap at 0.6, perhaps suggesting low downside risk. But it's often the case that low valuations are signs of dysfunction or pessimism about a business's future earnings potential.

Simply put, Teladoc's problem is that growing the membership base and squeezing a little bit more money on average out of each member per year isn't going to be enough to wow the market. Its base of subscribing members rose 10% year over year, reaching 57.8 million as of Q3, and each member was worth $2.61 in revenue, up from $2.40 a year ago.

But in the last three years, slow progress like that hasn't made Teladoc anywhere close to profitable, with its quarterly gross profit margin showing minimal improvement and its total expenses remaining stubbornly above 111% compared to its quarterly revenue.

While it probably won't go bankrupt anytime soon, as it has about $900 million in cash and equivalents, it might soon need to cut back on its operating expenses, which in 2021 totaled $1.6 billion. And that'll doubtlessly send its shares falling once more if it happens, so it's best to steer clear for a while until the risks have begun to abate.