Why do stocks trade under $20 a share?
Sometimes it's bad news that sends companies to that price point. It's probably wise to avoid those stocks unless the company has fixed its problems. But sometimes it's fast-growing, small-cap companies trading under $20 a share. That's an exciting situation to find.
Glu Mobile (NASDAQ:GLUU) makes games for your smartphone, including a big one it's releasing next year. MeiraGTx (NASDAQ:MGTX) is an impressive biotech attempting to find cures for blindness and Parkinson's. And Enphase Energy (NASDAQ:ENPH) is a small cap racing to provide solar energy to residences.
Let's take a closer look at these three companies that are all trading under $20 a share and appear to be on sale right now.
1. Glu Mobile: A Disney game for your smartphone
What makes Glu Mobile a particularly exciting stock right now is its relationship with Disney (NYSE:DIS). In the first quarter of 2020, the company is releasing Disney Sorcerer's Arena.
Yes, that's Ariel and Sulley you see in this promotional image for the new Glu game. Not to mention the Mouse himself (referenced in the game's name), who was a sorcerer's apprentice 57 years before Harry Potter was born. Glu's new role-playing game will feature an entire army of over 100 Disney characters, including Aladdin, Jack Sparrow, Captain Hook, Buzz Lightyear, Oogie Boogie, Scrooge McDuck, Elastigirl, Scar, Robin Hood, Stitch, Frozone, Jack Skellington, Darkwing Duck, Princess Jasmine, Maleficent, Scar, Dumbo, and Tinker Bell. And that's just a sampling of the characters. Did I mention Baloo?
Glu is really jumping into the big leagues with this one. These are iconic characters from Disney's billion-dollar film properties. We don't know yet if this game will be a monster hit. (It can't possibly be as cool as the trailer). What we do know is that Disney Sorcerer's Arena will be a very visible game with instant name recognition.
A free game for your smartphone won't move the needle much for Disney, which had $69 billion in revenues last year. But it's a heck of an opportunity for tiny Glu, whose market cap is $817 million. Right now it trades around $5.82 a share.
2. MeiraGTx: A biotech that might have cures for mutated genes
MeiraGTx is a founder-led biotech with an impressive array of drugs in clinical trials. The company is seeking genetic cures for a variety of eye diseases, as well as Parkinson's and other neurological diseases. Johnson & Johnson (NYSE:JNJ) was so impressed with the science, it bought in with a $100 million cash investment. A couple of months after that, Johnson & Johnson bought $40 million worth of stock in the tiny biotech.
MeiraGTx now has a war chest of $253 million in cash, almost half its market cap. And its much larger partner is funding most of its eye trials. Right now MeiraGTx has six drugs in clinical trials. While none of the drugs are in phase 3 trials yet, five of the drugs have orphan drug status from the FDA, and two of them are on a fast track.
Finding cures for blindness is a great space to be in. Right now big pharma is on a spree of acquiring gene therapy biotechs in ophthalmology. Earlier this year Roche made a $4.3 billion offer to acquire Spark Therapeutics, and Biogen bought out Nightstar Therapeutics in an $800 million deal.
So far MeiraGTx has been a wild ride for its investors, almost doubling from its initial public offering. It's now back down to its IPO price. The company trades at roughly $15 a share.
3. Enphase Energy: Fantastic growth in solar energy
Enphase Energy has been a phenomenal stock so far this year, up about 307% from the beginning of the year. The stock was actually up 649% at one point. The company is in a race with SolarEdge (NASDAQ:SEDG) to provide inverters for solar panels. These inverters change the power from direct current (DC) to alternating current (AC) so your solar panels can connect to the energy grid.
In the past, companies used a "string" inverter that would convert all the panels at the same time. This was the cheapest option but also created safety hazards. At the beginning of the year, the federal government issued new rules that required the ability to shut off power to an individual panel. This rule change was incredibly beneficial to Enphase. The company's solution is a microinverter that is placed on every solar panel. SolarEdge has a power optimizer that still works with the string inverter, but allows individual panels to be shut down.
Revenue growth has been outstanding. In its most recent quarter, sales of its microinverters shot up 131% from this time last year, to $180 million. Net income for the company was $31.1 million, almost triple the $10.6 million the company earned last year.
Of course one concern with solar energy is that a lot of this growth is partially funded by the federal government. Homeowners get tax credits for installing solar panels. Right now 30% of the cost is offset by tax credits. This will be reduced to 10% by 2022.
This concern has driven the stock down from its highs, making the price very affordable. Enphase has a forward P/E of 19 and a price-to-earnings growth of 0.22. It's currently trading at about $19 a share.