A stock's trading price generally can't tell us much about a company's actual value without the context of its revenue, profits, or market capitalization. Depending on multiple factors, a $20 stock might actually be more expensive than a stock that trades at $100 per share.
That said, most companies still price their IPOs above $10 a share, presumably because a single-digit price looks less appealing. Therefore, stocks don't usually dip below $10 unless they face significant challenges.
But that doesn't mean that every stock that trades below $10 is a lost cause. Let's take a look at three stocks that are trading at single-digit levels -- Magnite (MGNI -0.48%), UMC (UMC 0.77%), and Baozun (BZUN -2.17%) -- and why they might still bounce back in the future.
Magnite helps digital media owners manage their own ad inventories as the world's largest sell-side platform (SSP) for digital ads. It was created by the merger of The Rubicon Project and Telaria in 2020, and it subsequently expanded by acquiring SpringServe, SpotX, and Carbon.
Magnite generated 40% of its revenue (excluding traffic acquisition costs, or ex-TAC) from its connected TV (CTV) business in its latest quarter. Its mobile ads brought in 35% of its revenue, while the remaining 25% came from its desktop ads. It expects its CTV business to become its core growth engine over the next few years as linear TV platforms die out.
Its CTV business struggled in the second half of 2021 as supply chain disruptions throttled its ad sales to automakers and other sectors. However, the segment's growth stabilized in the first quarter of 2022 as some other sectors -- especially travel -- gradually recovered in a post-lockdown world.
Magnite expects its ex-TAC revenue to rise by at least 20% this year, and to continue rising an average rate of more than 25% over the long term. It also plans to keep its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) margins between 35% and 40%. That's a bright outlook for a stock that trades at just over two times this year's sales.
2. United Microelectronics
United Microelectronics Corp., or UMC, is the second-largest chip foundry in Taiwan after Taiwan Semiconductor Manufacturing (TSM 0.92%). However, it attracts a lot less attention than TSMC because it only manufactures older and larger chips.
Back in 2018, UMC stopped chasing TSMC and Samsung in the "process race" to manufacture smaller and denser chips. Instead, it focused on manufacturing less capital-intensive chips for the automotive and Internet of Things (IoT) markets.
That conservative approach enabled UMC to generate stable growth while profiting from the soaring demand for new chips worldwide. That's why its utilization rate has remained above 100% for four straight quarters.
Analysts expect UMC's revenue and earnings to rise 21% and 35%, respectively, this year as the chip shortage drags on. UMC's growth will likely decelerate in 2023 as the market rebalances itself, but its low forward price-to-earnings ratio of seven will likely limit its downside potential and make it a safe value play in this challenging market.
In the past, foreign companies that wanted to reach China's online shoppers needed to set up their own Chinese subsidiaries, hire their own sales and tech teams, and deal with a lot of unpredictable regulations.
Baozun simplifies that entire process as an end-to-end platform for e-commerce, marketing, and logistics. Instead of expanding into China on their own, big companies like Nike and Starbucks simply outsource all of those tasks to Baozun.
Baozun initially grew like a weed as foreign companies flocked to China. But in 2021, its revenue only increased 6% as it grappled with macro headwinds in China, slower consumer spending, supply chain challenges, and the government's crackdown on Alibaba and other leading e-commerce platforms. Its adjusted net income fell 63%.
That situation seems dire, and the recent COVID-19 lockdowns across China could exacerbate that pain. However, analysts still expect its revenue and earnings to rise 7% and 73%, respectively, this year, as the market stabilizes. Baozun's ongoing shift toward a "non-distribution" model, which lets foreign companies ship their products directly to Chinese consumers instead of passing through its capital-intensive logistics network, should also boost its long-term margins.
That recovery might not happen right away, but I think Baozun's stock could be getting too cheap to ignore at just 10 times forward earnings -- and it could easily soar on any positive developments in China.