When the ASX has a number of stocks already trading at above $100 a share, some investors might be considering cashing in their gains and investing in some companies with ‘cheaper’ share prices.
And by that I mean shares trading for under $5, although they may not necessarily be cheap.
Let me explain.
Much depends on a company’s earnings. A company can have a share price of above $100, but generate earnings of more than $5 per share. That would place the company on a P/E ratio of 20x. But a company with a share price of $5 generating just 50 cents of earnings is cheaper, because it is trading on a P/E ratio of 10x. If the company was generating just 10 cents of earnings, then it would be on a P/E ratio of 50x –actually more expensive on a P/E basis.
These five companies’ shares all trade under $5.00, but they are generating strong revenue growth (at their most recently announced financial results) as the table below shows…
|Company||Share Price||Market Cap ($m)||Revenue growth|
|Nearmap Ltd (ASX: NEA)||$0.58||$208.6||20%|
|Speedcast International Ltd (ASX: SDA)||$3.95||$560.7||41%|
|PWR Holdings Ltd (ASX: PWH)||$3.21||$321.0||46%|
|Reliance Worldwide Corporation Aus P Ltd (ASX: RWC)||$3.21||$1,685.3||18%|
|Appen Ltd (ASX: APX)||$3.24||$314.6||49%|
Source: Company reports
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The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.