Sometimes big things can come from little price tags. There aren't a lot of successful stocks trading for less than $5 a share. Less than 4% of U.S. exchange-traded equities are currently trading and wading in that pool. With lower prices come higher risks, but also potential upside if an out-of-favor company has some bullish catalysts in the works.
AMC Entertainment (AMC 4.03%) and Grab Holdings (GRAB -0.72%) are two names that I think can deliver market-beating returns in the next couple of years. Let's take a closer look at these two stocks with market caps above $1 billion and price points below $5 that I think are worth buying in August.
1. AMC Entertainment
Like the crimson-colored walls, curtains, and carpeting at your local multiplex, AMC investors have been seeing red in recent years. The country's largest movie theater chain has plunged more than 99% from its frenzied peak four summers ago. It doesn't mean that the value of the company is less than 1% of what it was in 2021. AMC has diluted its shareholders with a deluge of new shares and a head-shaking preferred equity unit conversion.
This isn't a very favorable backdrop for a stock pitch, but I'm a sucker for theatrical narrative arcs and redemption stories. There's no point in dwelling on the past. Let's talk about the future. Movie theater stocks have had to deal with pandemic shutdowns in 2020, a screenwriter strike in 2023, and the streaming video revolution. Audience levels are substantially lower than they were before the COVID-19 crisis, and -- to be fair -- they were already trending lower for several years before that. It doesn't mean that it's curtains for AMC. The industry is finding ways to bounce back.
Image source: Getty Images.
AMC reports its second-quarter results next week, shortly after Monday's market close. It was a great quarter for movie studios and the exhibitors that they serve. After a 12% year-over-year decline in domestic ticket sales for the industry in the first quarter, receipts soared 37% in the second quarter according to Box Office Mojo. Rival Cinemark was the first to report this earnings season last week. The country's third-largest operator saw its revenue rise just 28%, but it was weighed down by its international operations. Its U.S. revenue rose 33%. It's also worth noting that price per ticket and concession revenue per patron inched higher. Cinemark's operating profit and net income more than doubled. All of this bodes well heading into AMC's marquee moment.
Analysts see AMC posting a small loss on a 30% increase in revenue. Earlier this week I wrote about how AMC is in a good place to surprise investors with a quarterly profit on Monday afternoon. Who cares if audience counts are below pre-pandemic levels? The folks who are pulling up to the ticket takers are willing to spend about 30% more than they were in 2019 for a better experience that now includes reserved seating and premium formats. They're also spending more on concessions on ramped-up offerings and the widespread arrival of mobile ordering making the experience more convenient.
AMC isn't Cinemark. It's not going to pay a dividend anytime soon the way that Cinemark started earlier this year. AMC's five-year chart shows a 94% decline compared to Cinemark more than doubling. However, just as Cinemark earned the market's respect when it turned profitable in 2023, next week -- and this month -- could be AMC's close-up moment.
2. Grab Holdings
Grab may not be a household name to you, but it's a different story in Southeast Asia. The regional super-app got its start in 2012 when a pair of Harvard MBA students launched a ride-hailing business in Malaysia. In the next two years it would roll it out to seven other countries in the region. Over time it would go on to add restaurant and grocery delivery, a digital payment platform, and offer financial services including a rapidly growing business providing business loans.
Today it serves 46.2 million monthly transacting users, a 13% increase over the past year. Revenue is growing even faster as engagement levels and its monetization skills improve. Revenue has been accelerating in the last three quarters, including a 23% year-over-year jump on the top line in last week's financial update. The bottom line is growing even faster.
Grab had the misfortune of hitting the market just as the special purpose acquisition company (SPAC) craze was at a frenzied peak in 2021. Initially valued at $40 billion -- a new record for a SPAC -- it trades for less than half of that today. It doesn't seem right. Revenue has more than quadrupled. It was posting 10-figure annual losses when it hit the market, and now it's profitable. Its dominance in the region has attracted a lot of global giants with substantial stakes in the company. It's a good time to grab some Grab.
