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5 shares under $5 with huge potential

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.


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Motley Fool writer/analyst Mike King owns shares in Nearmap. You can follow Mike on Twitter @TMFKinga

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.