A company's stock price is one of the many factors that go into determining its value -- and a small price doesn't always mean a small company. Sometimes, big companies have little stock prices and vice versa, depending on how many shares are trading on the open market.
But that doesn't mean stock prices don't matter. Many investors love small stocks because they tend to have smaller market caps and more room to grow.
Here are three great stocks trading at under $10 a share. They were selected for their small market caps, low top-line valuations, and the potential for massive long-term growth. The first pick is Celsius Holdings (CELH 3.99%), a rapidly growing fitness drink producer. The other two, Glu Mobile (GLUU +0.00%) and DouYu Holdings (DOYU 2.04%), are bets on the coronavirus-resistant gaming industry.
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1. Celsius Holdings
Celsius Holdings is a small-cap consumer goods company that focuses on thermogenic calorie-burning beverages. The functional beverage market, which includes energy and enhanced drinks, is projected to grow at a compound annual growth rate (CAGR) of 8.66% until 2024, which suggests that Celsius is poised for long-term growth, and the company's soaring sales reflect massive consumer demand for its products.
Celsius reported first-quarter earnings on May 12, and the results were a slam dunk. Total revenue soared 94% from $14.49 million to $28.18 million while operating income went from a $502,047 loss to a $1.25 million gain. The company's European operations saw the most impressive growth, with sales surging 183% from $3 million to $8.5 million in the quarter.
Celsius' rapid European growth is due, in part, to the recent acquisition of Func Food Group, a Finnish wellness company it purchased in late 2019. The Func acquisition cost Celsius $15.1 million in cash and the assumption of $9.5 million in Func's outstanding debt, and it should help the company penetrate the lucrative European market.
With a price-to-sales multiple of just 6.8, Celsius Holdings trades at a relatively low valuation compared to other players in the industry like Monster Beverage, which trades at 8.7 times sales despite significantly slower revenue growth. Celsius looks undervalued at these prices, especially if it can maintain its breakneck sales growth in Europe. Investors shouldn't let the company's $8.6 million in bond-related liability scare them off because its $19 million in cash gives it a strong balance sheet.
2. Glu Mobile
The coronavirus pandemic has sent the economy into a tailspin, but mobile gaming companies like Glu Mobile are relatively unscathed. That's because gaming is a great way for people to keep themselves entertained amid lockdowns and shelter-in-place orders around the world. Glu Mobile has dramatically outperformed the market during these difficult times, with shares rising 56.9% year to date compared to a 6.6% drop in the S&P 500, and it looks like the rally is far from over.
Glu Mobile's current market cap sits at around $1.43 billion compared to 2019 sales of $411.38 million. This gives it a price-to-sales multiple of 3.48, which screams undervaluation when considering the company's steady, coronavirus-resistant growth.
Glu Mobile's sales grew 12% from $366.56 million to $411.38 million from 2018 to 2019. And the company didn't miss a beat in the first quarter with sales growing 12%, from $95.89 million to $107.27 million despite the coronavirus pandemic.
In the near term, Glu Mobile faces challenges from slowing bookings growth in its Covet Fashion and Cooking Dash intellectual properties, which are beginning to see revenue flatline and decline. However, over the long term, the company's fast-growing assets like Design Home, Tap Sports Baseball, and Kim Kardashian Hollywood are set to make up for those declines. Glu Mobile also released two new games, Disney Sorcerer's Arena and Diner DASH Adventures, which already represent around 8% of first-quarter bookings and are growing rapidly.
3. DouYu Holdings
The Chinese esports market is projected to grow at a CAGR of over 16% until 2025, and DouYu is a dominant player in the industry with massive growth potential as the market expands. DouYu focuses on live game streaming and can be understood as a Chinese version of Twitch, an Amazon.com-owned company with a similar business model.
The company leverages a large network of streamers who engage with viewers and drive monetization through donations and subscriptions. It's a business that depends on the quality of its streamers, which DouYu recognizes. That's why the company uses talent agencies to recruit streamers with favorable monetization characteristics and steers users toward newer games. The strategy seems to be paying off, with the platform's average revenue per user (ARPU) increasing 23.7% percent year over year to 280 RMB ($39.14) in the first quarter.
DouYu reported first-quarter revenue growth of 53% from 1.49 billion RMB to 2.28 billion RMB ($321.1 million). And the company reports net income of 254.5 million RMB ($35.9 million) compared to 18.2 million RMB in the prior-year period.
With a market cap of just 2.5 times 2019 sales, DouYu looks extremely undervalued. This might be because of suspicion toward Chinese equities --- feelings that have become exacerbated by the Luckin Coffee accounting investigation, U.S. government threats to delist certain Chinese stocks, and the geopolitical issues surrounding the coronavirus pandemic. But for investors who have the stomach for Chinese equities, DouYu is a good high-risk/high-reward investment because of its low valuation and compelling top-line growth.
