Stocks that trade below $10 per share are in that range for a few reasons. Many of them are smaller companies without a lot of visibility or recognition, while others are low-growth companies in saturated industries.
However, you may also find good companies that saw their share price drop due to some major catalyst in their industry or at their company. Others are new companies or startups that are just getting off the ground with hopes of achieving multi-bagger growth.
Investors are typically looking for the latter two: a good value that is poised to grow or a growth stock that is looking to take off. However, for every Nvidia (NASDAQ: NVDA), which was trading below $10 per share just seven years ago, there are several stocks that never go anywhere or get acquired. Thus, it is certainly not an easy task to find the winners before they become winners.
Nonetheless, here are two stocks below $10 per share that are worth keeping an eye on. One is a beaten-down stock that looks poised to bounce back, while the other is a startup with significant growth potential.
1 . Warner Bros. Discovery
Warner Bros. Discovery (NASDAQ:WBD) is a media conglomerate that formed last year when AT&T (NYSE:T) spun off WarnerMedia and it combined with Discovery to form a new company. It has been a bumpy ride since the company went public in April 2022, opening at around $24 per share.
The stock debuted at a time when inflation was starting to take off, interest rates were beginning to rise, and a bear market was in full swing. A year later, it was dealing with a writers’ strike. Some 18 months after its IPO, Warner Bros. Discovery is trading under $10 per share at around $9.80.
However, there is good reason to believe that this company, which owns Warner Bros. Studios, TV networks like CNN, TNT, and TBS, and direct-to-consumer streaming networks like Max and Discovery+, will bounce back. In addition to the market issues stated above, Warner Bros. Discovery has been dealing with integration issues and high debt from the merger.
Last quarter it announced that it had made significant cost reductions and paid down some $1.6 billion of its almost $50 billion in debt. At the end of the second quarter, it had $1.7 billion in free cash flow and $3.1 billion in cash, which it will use to pay down debt and invest in growth. The company was 4.6x net levered after Q2 and intends to be 4x levered at the end of 2023 and 2.5-to-3x levered at the end of 2024.
The company did post revenue gains in the quarter, even though it had a net loss due to $1.6 billion in pre-tax amortization charges. Given all the headwinds the company has faced, it is on the right track and should return to profitability soon with the writersʻ strike over and debt being paid down.
2. Applied Digital
Applied Digital (NASDAQ:APLD) is a startup to keep an eye on. The stock price is up some 160% year to date to $4.80 per share as of Oct. 25, but it had been up over $10 per share in late July before coming back down. This is a volatile stock, but it has lots of growth potential in a high-growth industry.
The company runs data centers for the high-performance computing industry, focusing on artificial intelligence (AI) and cloud-computing customers through its subsidiary, Sai Computing. This year, it opened a new data center in North Dakota and is preparing to open another one in Texas in the fourth quarter. It will have three data centers when the new one opens.
Data centers that are specifically designed and equipped to handle more intensive AI computing requirements are just starting to emerge as demand for AI computing grows rapidly. Applied Digital has already signed two major clients this year, one for $460 million over 36 months and another for $180 million over 24 months, so it is well positioned as one of the first movers in this space.
In its first quarter of fiscal 2024, which ended Aug. 31, Applied Digital generated $36 million in revenue, a 425% year-over-year increase. It had a net loss of $9.6 million but an adjusted EBITDA of $10 million. For the full 2024 fiscal year, it expects explosive growth with total revenue in the range of $385 million to $405 million and adjusted EBITDA between $195 million and $205 million.
Analysts give it a consensus price target of $15 per share, which would be a 210% increase over the current price. This is definitely a potential high-flyer to watch.
Disclaimer: All investments involve risk. In no way should this article be taken as investment advice or constitute responsibility for investment gains or losses. The information in this report should not be relied upon for investment decisions. All investors must conduct their own due diligence and consult their own investment advisors in making trading decisions.
