Investors can certainly boost their returns by concentrating on stocks trading between $1 and $10. However, a disciplined approach is necessary because many of these businesses are speculative and lack the underlying fundamentals to support their prices.
The bad behavior exhibited by lower-quality companies in this space can spook even the most seasoned professionals, which is why we started StockStory - to separate the good from the bad. That said, here are three stocks under $10 to avoid and some other investments you should consider instead.
iHeartMedia (IHRT)
Share Price: $3.15
Occasionally featuring celebrity hosts like Ryan Seacrest on its shows, iHeartMedia (NASDAQ: IHRT) is a leading multimedia company renowned for its extensive network of radio stations, digital platforms, and live events across the globe.
Why Do We Steer Clear of IHRT?
- Annual revenue growth of 5.6% over the last five years was below our standards for the consumer discretionary sector
- Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned
- Unfavorable liquidity position could lead to additional equity financing that dilutes shareholders
At $3.15 per share, iHeartMedia trades at 7.5x forward EV-to-EBITDA. Dive into our free research report to see why there are better opportunities than IHRT.
Energy Recovery (ERII)
Share Price: $10.20
Having saved far more than a trillion gallons of water, Energy Recovery (NASDAQ: ERII) provides energy recovery devices to the water treatment, oil and gas, and chemical processing sectors.
Why Are We Cautious About ERII?
- 2.6% annual revenue growth over the last two years was slower than its industrials peers
- Sales are projected to tank by 11.2% over the next 12 months as demand evaporates
- Waning returns on capital imply its previous profit engines are losing steam
Energy Recovery is trading at $10.20 per share, or 15.8x forward P/E. To fully understand why you should be careful with ERII, check out our full research report (it’s free).
Neogen (NEOG)
Share Price: $9.41
Founded in 1981 and operating at the intersection of food safety and animal health, Neogen (NASDAQ: NEOG) develops and manufactures diagnostic tests and related products to detect dangerous substances in food and pharmaceuticals for animal health.
Why Should You Dump NEOG?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 2.1% annually over the last two years
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
- Negative EBITDA restricts its access to capital and increases the probability of shareholder dilution if things turn unexpectedly
Neogen’s stock price of $9.41 implies a valuation ratio of 33.7x forward P/E. Read our free research report to see why you should think twice about including NEOG in your portfolio.
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