Stocks that trade under $5 are generally referred to as penny stocks, and they tend to be riskier and more volatile than higher-priced stocks. Many of these companies have shaky business models, and their stocks often trade on hype and unrealistic promises.

But not all penny stocks are bad investments. Plenty of companies can generate stable growth even as their share prices remain below $5. Among that group of penny stocks, Tuniu (TOUR -2.69%), LiveXLive Media (LIVX -1.17%), and Waitr (WTRH 6.67%) deserve more attention.

1. Tuniu

Tuniu is an online travel agency (OTA) in China that provides airline, rail, car rental, hotel, and tour bookings. Like many other OTAs, Tuniu struggled last year as the pandemic disrupted travel.

A five dollar bill in a jeans pocket.

Image source: Getty Images.

Tuniu is China's fourth-largest OTA after (TCOM -3.04%), Qunar, and Fliggy. Being an underdog in that saturated market during the pandemic has been challenging, but it's hanging in there.

The company's revenue plunged 80% to 450.3 million yuan ($69 million) in 2020 as bookings slowed to crawl, and its net loss widened from 729.4 million yuan to 1.3 billion yuan ($205.9 million). Those declines look dire, but analysts expect Tuniu's sales to more than quadruple this year and for its net loss to narrow as travel rebounds.

Based on that forecast, Tuniu trades at just 1.4 times forward sales. By comparison, trades at 5.7 times forward sales.

Tuniu is still burning cash and carrying lots of debt, but its business likely bottomed out last year. It's still a speculative investment, but it could also be an attractive takeover target as its larger rivals further consolidate China's fragmented OTA market.

2. LiveXLive Media

LiveXLive Media's eponymous streaming music platform lets users create and share custom radio stations. It also owns the podcast network PodcastOne, the streaming app Slacker Radio, and the live events platform React Presents.

A young woman listens to music on her headphones in a library.

Image source: Getty Images.

It's tiny compared to streaming music giants like Spotify (SPOT -0.43%) and Apple Music. However, LiveXLive continues to grow in the shadows of its much bigger rivals.

The number of paying LiveXLive subscribers grew 25% to 849,000 in fiscal 2020, which ended last March, as its full-year revenue rose 15% to $38.7 million. Its net loss widened slightly, from $37.8 million to $38.9 million.

In the first nine months of fiscal 2021, its revenue rose another 54% year-over-year to $44.2 million as its net loss narrowed from $30.4 million to $26.4 million. Its number of paid subscribers grew 22% year over year to over a million at the end of the third quarter.

Analysts expect LiveXLive Media's revenue to rise 66% for the full year, as it integrates its recently acquired PodcastOne assets and continues to gain more subscribers. They expect its revenue to rise another 49% in fiscal 2022.

LiveXLive won't generate a profit anytime soon, but its losses are expected to narrow over the next two years. The stock also seems reasonably valued at less than 5 times this year's expected sales. Spotify, which isn't profitable either, also trades at 5 times this year's sales.

3. Waitr

Like Tuniu and LiveXLive, Waitr is another underdog in a cutthroat market. It owns a small third-party food delivery platform that competes against heavyweights like DoorDash, Uber Eats, and Grubhub.

Waitr only controls about 1% of the online food delivery market in the U.S., according to Second Measure. However, it continues to generate stable revenue growth and it actually turned profitable in 2020 after replacing its full-time drivers with independent contractors.

That's a remarkable achievement. DoorDash, Uber, and Grubhub still haven't generated any profits from their food delivery platforms. It also suggests that Waitr's strategy of locking down smaller markets (mainly across Louisiana and Minnesota) is more sustainable than expanding widely at all costs. Waitr also recently moved into Florida's market by buying the assets of Delivery Dudes.

Waitr's revenue rose 7% to $204.3 million in 2020. It generated a net profit of $15.8 million, compared to a loss of $291.3 million in 2019. It also posted an adjusted EBITDA of $43.3 million for the full year, compared to a loss of $54.8 million in 2019.

Wall Street expects Waitr's revenue to rise 1% this year (as it laps its acquisition of Minneapolis-based Bite Squad) and 8% next year. Its earnings are expected to rise 6% this year and 11% next year.

Those are surprisingly stable growth rates for an underdog in a saturated market, and the stock still looks cheap at 14 times forward earnings.

A final word

Tuniu, LiveXLive Media, and Waitr all look healthier than most penny stocks, but investors should still exercise caution. They're all underdogs in competitive spaces, and could still succumb to the market leaders over the long term.

However, investors who can stomach that risk should give some serious consideration to these oft-overlooked stocks.