Investors can certainly boost their returns by concentrating on stocks trading between $1 and $10. However, a disciplined approach is necessary because many of these businesses are speculative and lack the underlying fundamentals to support their prices.
Luckily for you, our mission at StockStory is to help you make money and avoid losses by sorting the winners from the losers. Keeping that in mind, here are three stocks under $10 to avoid and some other investments you should consider instead.
Sleep Number (SNBR)
Share Price: $1.60
Known for mattresses that can be adjusted with regards to firmness, Sleep Number (NASDAQ: SNBR) manufactures and sells its own brand of bedding products such as mattresses, bed frames, and pillows.
Why Do We Think SNBR Will Underperform?
- Weak same-store sales trends over the past two years suggest there may be few opportunities in its core markets to open new locations
- Sales were less profitable over the last three years as its earnings per share fell by 44% annually, worse than its revenue declines
- Depletion of cash reserves could lead to a fundraising event that triggers shareholder dilution
Sleep Number is trading at $1.60 per share, or 10.1x forward EV-to-EBITDA. To fully understand why you should be careful with SNBR, check out our full research report (it’s free).
Purple (PRPL)
Share Price: $0.42
Founded by two brothers, Purple (NASDAQ: PRPL) creates sleep and home comfort products such as mattresses, pillows, and bedding accessories.
Why Is PRPL Risky?
- Sales tumbled by 8.4% annually over the last five years, showing consumer trends are working against its favor
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
- Short cash runway increases the probability of a capital raise that dilutes existing shareholders
At $0.42 per share, Purple trades at 0.1x forward price-to-sales. Dive into our free research report to see why there are better opportunities than PRPL.
Western Union (WU)
Share Price: $8.36
With a history dating back to 1851 when it began as a telegraph company, Western Union (NYSE: WU) is a global money transfer service that enables consumers and businesses to send funds across borders and currencies, typically within minutes.
Why Do We Pass on WU?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 2.8% annually over the last five years
- Falling earnings per share over the last five years has some investors worried as stock prices ultimately follow EPS over the long term
Western Union’s stock price of $8.36 implies a valuation ratio of 4.4x forward P/E. Read our free research report to see why you should think twice about including WU in your portfolio.
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