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5 shares under $5 with huge potential

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Credit: .coomb.

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.


Where to invest $1,000 right now

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes are the five best ASX stocks for investors to buy right now. These stocks are trading at dirt-cheap prices and Scott thinks they are great buys right now.

*Returns as of February 15th 2021

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.

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