Today I'm going to spend some time scouring the investment intensive care unit as we examine five companies that still have a pulse despite their anemic price. Any rational thinker accepts the premise that stocks trading under five dollars aren't blemish-free; the trick here is to weigh the pros and cons, with the positives winning the day.
I hope that each is battered to the point the downside risk is mostly eliminated. Note that I said mostly. You'll never remove all of it. (To begin with the basics, read The Lowdown On Penny Stocks.)
Cybex International (Nasdaq:CYBI) • Market close August 15: $3.48
Cybex markets exercise equipment, both cardiovascular and strength, to commercial markets. Revenue has grown each of the last four years from $90.5 million in 2003 to $147 million in 2007. In the same period, operating income grew to $8.6 million from $1.8 million, producing an operating margin of 5.9%. Revenue in the second quarter of 2008 was $33.1 million, $1.6 million less than in the same quarter last year. Gross margins were 290 basis points lower and operating income was $541,000, down from $1.8 million a year earlier. Up until the second quarter, it had 23 consecutive quarters of revenue growth. Its CEO indicated the sales order rate improved at the end of the second quarter, pointing to better long-term sales. With the stock down 27% in the last 52-weeks and trading well below its all-time high in 2006, it's definitely worth a second look.
Retail Ventures (NYSE:RVI) • Market close August 15: $4.39
Retail Ventures currently operates two chains, DSW and Filene's Basement. DSW sells shoes and Filene's sells better merchandise at discounted prices. To focus on these two brands, Retail Ventures unloaded its 81% ownership of Value City on January 23, 2008, taking an after-tax loss of $90 million. Retail Ventures is 50.1% owned by Schottenstein Stores. Second quarter sales of its continuing operations were down 1% to $459.8 million, with same store sales off 5.1%. In early 2007, it reached a high of more than $20 and has since plummeted to below $5. Its stock hasn't been this low since 2003. With $3.59 in cash per share and an additional $1.42 in earnings per share, the stock looks down right inviting. (For more on evaluating companies, check out Advanced Financial Statement Analysis.)
Asia Time Corporation (AMEX:TYM) • Market close August 15: $3.80
The Hong Kong distributor of watches and watch movements that represents over 30 companies is capitalizing on the growth of the middle class in China. It went public in February of 2008 at $3.50 on the American Stock Exchange. Its first day return was 143%. Since then it's dropped back around the offering price. CEO Kwong Kai Shun owns 77.9% of the stock. To date, it's had a good growth record. Sales grew from $33.2 million in 2003 to $97 million in 2007. At the same time, income from operations went from $410,000 in 2003 to $9.5 million; Q2 revenue was up 74.4% to $36.8 million from $21.1 million year-over-year. Net income of $2.4 million compared to a small loss the previous year. Management says it's on track to grow revenues and net earnings by 30%. Based on this guidance, revenue should be approximately $126 million and net income $7.2 million in 2008. The time is right.
Five Star Quality Care (AMEX:FVE) • Market close August 15: $3.93
Five Star provided living space for seniors. Its revenue has grown to $972 million in 2007 from $545 million in 2003. Net income from operations hasn't been as smooth with losses in three out of the last five years. However, in 2007, it was able to produce $26.1 million in net income from continuing operations, a $135 million turnaround from 2006. In early 2007, its stock reached a five-year high of around $12 and then slowly retreated to $4, its lowest point since 2004. In August it brought a suit against Sunrise Senior Living (NYSE:SRZ) to recover $10 million in overcharges Sunrise took from Five Star between 2003 and 2006 for managing some of its senior living communities. This won't help keep it focused on operations, but it does demonstrate management's willingness to stand up for shareholders.
Actuate (Nasdaq:ACTU) • Market close August 15: $4.25
Not being tech savvy, the simplest description of the business is that it provides internet applications that allow businesses to use and share information more effectively. Revenue has grown from $104 million in 2003 to $141 million in 2007 and an operating loss in 2003 of $4.5 million turned into a $19.3 million operating profit by 2007. In the second quarter, revenue was flat at $34.6 million and operating income dropped to $3.3 million from $4.1 million at the same time last year. Revenue and earnings for all of 2008 should be flat with company expected income of about $140 million. There were two pieces of good news in Q2: the company ranked No.37 on the Fortune Small Business Top 100 Fastest Growing Companies list, and on July 2, Roth Capital initiated coverage with a 'buy' rating. (To learn more, read Analyze Investments Quickly With Ratios.)
There are many stocks which have dipped under five dollars, but this doesn't always mean they are a bargain. Continued analysis of the underlying company is needed to find the under priced stocks in the bunch. These low priced stocks will give you a jumping off point for evaluating your options under five dollars.
To sort the predators from prey, read Spotting Sharks Among Penny Stocks and Due Diligence In 10 Easy Steps.