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
When the top 20 ASX stocks are struggling to even generate growth, it might be time for investors to take a look at the smaller end of the market.
Discover the 'new breed' of blue chips that could take your portfolio higher in 2016
Forget BHP and Woolworths. These 3 "new breed" top blue chips for 2016 pay fully franked dividends and offer the very real prospect of significant capital appreciation. Click here to learn more.
The report is free! No credit card required.
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.