Stocks under $10 pique our interest because they have room to grow (as well as the most affordable option contract premiums). That doesn’t mean they’re bargains though, and we urge investors to be careful as many have risky business models.
The downside that can come from buying these securities is precisely why we started StockStory - to isolate the long-term winners from the losers so you can invest with confidence. Keeping that in mind, here are three stocks under $10 to avoid and some other investments you should consider instead.
DoubleVerify (DV)
Share Price: $9.69
Using advanced analytics to evaluate over 17 billion digital ad transactions daily, DoubleVerify (NYSE: DV) provides AI-powered technology that verifies digital ads are viewable, fraud-free, brand-suitable, and displayed in the intended geographic location.
Why Are We Out on DV?
- 13.7% annual revenue growth over the last two years was slower than its software peers
- Customer acquisition costs take a while to recoup, making it difficult to justify sales and marketing investments that could increase revenue
- Operating margin didn’t move over the last year, showing it couldn’t increase its efficiency
DoubleVerify is trading at $9.69 per share, or 1.9x forward price-to-sales. To fully understand why you should be careful with DV, check out our full research report (it’s free).
Cars.com (CARS)
Share Price: $9.66
Originally started as a joint venture between several media companies including The Washington Post and The New York Times, Cars.com (NYSE: CARS) is a digital marketplace that connects new and used car buyers and sellers.
Why Are We Hesitant About CARS?
- Likely needs to improve its platform or increase its marketing budget for penetration to accelerate as its dealer customers were flat over the last two years
- Concerning trends in both user engagement and monetization suggest its platform’s efficacy is declining as its average revenue per buyer fell by 1% annually
- Earnings growth over the last three years fell short of the peer group average as its EPS only increased by 1.4% annually
Cars.com’s stock price of $9.66 implies a valuation ratio of 4.4x forward EV/EBITDA. Check out our free in-depth research report to learn more about why CARS doesn’t pass our bar.
iHeartMedia (IHRT)
Share Price: $4.53
Occasionally featuring celebrity hosts like Ryan Seacrest on its shows, iHeartMedia (NASDAQ: IHRT) is a leading multimedia company renowned for its extensive network of radio stations, digital platforms, and live events across the globe.
Why Do We Avoid IHRT?
- Muted 6.5% annual revenue growth over the last five years shows its demand lagged behind its consumer discretionary peers
- Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
- Unfavorable liquidity position could lead to additional equity financing that dilutes shareholders
At $4.53 per share, iHeartMedia trades at 0.2x forward price-to-sales. Read our free research report to see why you should think twice about including IHRT in your portfolio.
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