Not too long ago, investors with smaller amounts of money to invest were limited by the price of any particular stock. With the advent of fractional shares, however, it's now possible to buy a small amount of any stock. A new investor can take just $20 and buy all or a fraction of nearly any stock they wish.
That said, not everyone has access to fractional shares. Those who do may still prefer to buy whole shares of a company. While stock price shouldn't be a determining factor in an investment decision, there are some stocks that are great investments and also have lower per-share prices.
There are two stocks in particular I feel are compelling buys for under $20 per share. Each have long-term growth potential in industries with large market opportunities ahead of them. Let's dig in and see why.
1. PubMatic
PubMatic (PUBM 1.75%) is a sell-side provider in the world of programmatic advertising. Put simply, the company helps content creators (like a website or an app on a smartphone) fill their advertising space with ads that are chosen in real time for the specific person viewing the ad. PubMatic is riding the transformation trend to connected TV and streaming services.
PubMatic believes that all advertising will eventually be digital and programmatic (served in real time for the specific viewer), and the company estimates global digital ad spend to grow at a compound annual growth rate (CAGR) of 10% through 2025. PubMatic has a market share of approximately 4%, demonstrating how much room there is to grow, both in terms of the existing market and what's expected over time.
The most recent quarterly results for PubMatic were not great as revenue growth slowed to 2% while expenses increased, resulting in a gross margin compression of 10 percentage points and a net loss, its first time as a public company.
However, management expects gross margin to improve each quarter in 2023 and anticipates capital expenses to decrease by 60% over 2022. This suggests the recent poor results are a bump in the road, not the beginning of a negative trend, which could present an opportunity for investors.
PubMatic currently trades for 4.1 times sales, not far above its all-time low and below its historical average.
2. Sonos
The idea of having a wireless speaker in your house isn't novel anymore, but that wasn't the case when Sonos (SONO -0.93%) debuted its first products in 2005. Before Amazon's Alexa was even an idea, Sonos had been selling multiroom wireless sound systems around the world.
While it may seem that wireless speakers have become commoditized, Sonos is the owner of more than 3,300 patents, helping it maintain its market position. It also operates an open platform and focuses on premium sound quality, making its products compelling to consumers who want high-quality sound while listening to their preferred streaming services.
So far, the business strategy has been successful. In 2016, Sonos products were in 4.6 million households, and by 2022, that number had grown to 14.0 million, good for a 20% CAGR over those six years. And despite that growth, Sonos products are only in 8% of what it calls affluent households, demonstrating how much market opportunity remains.
Sonos is facing some near-term headwinds with revenue for fiscal 2023 expected to be $1.65 billion (at the midpoint), down from $1.75 billion in fiscal 2022. The company is still targeting long-term annual revenue of $2.5 billion, but it appears it may take longer to realize that goal.
Despite these challenges, Sonos is still a strong brand with quality products. The recent results have also provided investors with a discounted stock price. Shares currently trade for only 1.2 times sales. For investors who believe Sonos can reaccelerate its growth, now is a great time to grab some shares.
