Although the nominal price of a single share in a company makes no difference to the company’s total value (as that depends on the number of shares on issue) a lot of investors like to buy shares with low nominal values.
For example a 20 cent stock only has to climb 2 cents to return a 10% capital gain for an investor while a $20 dollar stock has to move 100x or $2 dollars more to return the same capital gain.
Therefore we can see why a lot of traders are attracted to the small cap or penny stock end of the market. Remember though this multiplier-type effect also works in reverse and a 20 cent stock only has to lose 10 cents before you’d need to make a 100% gain just to break even on your original investment.
So keeping in mind that stocks under $5 tend to be riskier, let’s take a look at five that could still offer investors big returns.
Nearmap Ltd (ASX: NEA) changes hands for $2.52 today and is an aerial mapping software-as-a-service business that boasts a recurring revenue model, sales growth, and big potential via growing subscriber numbers in the giant U.S. market. The business posted a profit before tax over the most recent half and the share price has pulled back significantly since August.
Alcidion Group Ltd (ASX: ALC) is a growing healthcare software business that posted a marginal $84,000 net loss after tax on revenue up 33% to $16.9 million over fiscal 2019. The balance sheet is also reasonable. Nearly profitable, growing strongly and situated on the confluence of two great growth sectors in software and healthcare it could be an opportunity.
It’s a good example of how low priced stocks can offer outrageous gains as its doubled in price from 12 cents in June 2019 to 24 cents today on the back of its strong full year result in August.
Accent Group Ltd (ASX: AX1) is the footwear retailer behind popular stores like HypeDC, The Athlete’s Foot and Platypus. It also has exclusive distribution rights to popular brands like Dr Martens, Caterpillar, and Vans. Footwear is only semi-discretionary item and Accent appears to have a strong market position. It has around 550 million shares on issue which is a reasonably high amount and explains why the shares sell for $1.72 despite a $950 million market cap. The trailing yield is also a tasty 4.8% fully franked.
Hansen Technologies Limited (ASX: HSN) is a family run payment billings business that has a reasonable track record of organic growth and growth by acquisitions. Despite the acquisitions neither shares on issue or debt have blown out to mean earnings per share have generally grown over the long term. The stock is $3.30 today on 19x trailing earnings per share.
Catapult Group Ltd (ASX: CAT) is another software-as-a-service business that could be worth a punt for investors prepared to take on more risk in search of big returns. Its data analytics and athlete tracking technology should be familiar to sports fans as professional athletes wear its bra-like devices to hopefully improve performance. Subscriber numbers are growing strongly in the professional and amateur space, although Catapult is still loss making.
Remember just because you can buy a lot more shares in any of these businesses for $5,000 than you can buy shares in a $230 per share business like CSL Limited (ASX: CSL) doesn’t mean you’re getting ‘cheaper’ shares or more value for money.
You’re getting more shares but the same amount of present value. Future value remains an unknown whatever a nominal share price.
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Tom Richardson owns shares of Accent Group, CSL Ltd., and Nearmap Ltd.
You can find Tom on Twitter @tommyr345
The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Alcidion Group Ltd, CSL Ltd., Hansen Technologies, and Nearmap Ltd. The Motley Fool Australia owns shares of and has recommended Catapult Group International Ltd. The Motley Fool Australia has recommended Accent Group, Alcidion Group Ltd, Hansen Technologies, and Nearmap Ltd. 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 Scott Phillips.