Please ensure Javascript is enabled for purposes of website accessibility

3 Top Stocks Under $5

By Rick Munarriz - Updated Oct 21, 2019 at 5:17PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Groupon, Trivago, and Fitbit have prospects that are more promising than their low share prices.

Stocks typically have low prices for a reason, but it doesn't mean the shallow pool is just for speculators. Investors who can recognize some of the traits that the market as a whole is missing can score some pretty big returns if they can stomach the risk. 

Groupon (GRPN 1.30%)Trivago (TRVG 2.94%), and Fitbit (FIT) are some of the intriguing stocks that are trading below $5 right now. Investing in growth stocks is often about looking past the broken players trading for pocket change. Let's see, though, why these low-priced stocks should command your attention.

A woman wearing a Fitbit Alta HR fitness tracker with her arm flexed up to her head mid-workout.

Image source: Fitbit.

Groupon -- $2.96

The once-iconic flash-sale leader is shrinking, but Groupon isn't as irrelevant as you may think. It's true that revenue has declined for 14 consecutive quarters, and that the size of those year-over-year dips is widening. However, you may be surprised to learn that trailing revenue is actually just 18% lower than it was when Groupon's top line peaked in 2014, even though the shares themselves have fallen by more than 90% off their post-IPO 2011 highs. Turning growth around is a priority for investors, but Groupon isn't going away anytime soon with its cash-flush balance sheet. 

Some of the slide in Groupon's business is by design, as it shifts away from the low-margin product sales that have propped up the top line at the expense of profitability. The upside to the strategic shift is that Groupon is generating positive and growing adjusted earnings in this climate. Adjusted profit per share has risen from $0.18 last year to a projected $0.22 this year, pricing the stock at just 13 times earnings. The stock is as cheap as some of its deals, and you don't find too many low-priced stocks with growing bottom lines. 

Trivago -- $3.64

Inns aren't out at Trivago, even if the online portal that generates leads for hotel operators and the travel sites that book overnight stays is coming off six straight quarters of declining top-line results. Just as we're seeing with Groupon, the slowdown in revenue is strategic.

Trivago shares soared 22% in July after posting better-than-expected quarterly results. It is spending less to generate leads for its advertisers, but the average revenue per qualified referral has soared 28% over the past year. The end result here is that Trivago surprised the market with a small profit, reversing a loss from the same period a year earlier. Emphasizing quality over quantity, although it may result in weak revenue growth -- something that we're seeing at both Groupon and Trivago -- is the right approach for both companies. We'll get a fresh read on Trivago when it reports its third-quarter financials in two weeks. 

Fitbit -- $3.86

The game has changed for Fitbit. Just the fact that it's adapting to the changes, however, is important given how low the share price has gotten. The Fitbit name is synonymous with the wrist-hugging gadgets that measure physical activity, but when that business started to fade a couple of years ago, it was its foray into the smartwatch market that kept the top line growing. Now that the industry leader has put out cheaper smartwatches, the game has migrated back to fitness trackers, where Fitbit's starting to regain some of its former glory. 

Tracker revenue soared 51% in Fitbit's second quarter, offsetting the sharp drop in smartwatch sales and enough to extend its streak of total revenue growth to four consecutive quarters. Fitbit's installed user base keeps growing, and the 3.5 million devices it sold in the second quarter was 31% higher than a year earlier. Fitbit is still serving up red ink on the bottom line, but the deficits are narrowing.  

Though Fitbit stock got a boost last month when reports surfaced that it was considering putting itself up for sale, it's not sitting still for a potential suitor that can take advantage of the company's established brand and growing customer base. Fitbit keeps expanding its business internationally, and making moves including recently shifting production out of China to snip tariff concerns.

Rick Munarriz owns shares of Fitbit. The Motley Fool recommends Fitbit and Trivago. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Groupon, Inc. Stock Quote
Groupon, Inc.
GRPN
$12.86 (1.30%) $0.17
Fitbit, Inc. Stock Quote
Fitbit, Inc.
FIT
Trivago Stock Quote
Trivago
TRVG
$1.75 (2.94%) $0.05

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
390%
 
S&P 500 Returns
125%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/11/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.