Stocks under $10 pique our interest because they have room to grow (as well as the most affordable option contract premiums). That doesn’t mean they’re bargains though, and we urge investors to be careful as many have risky business models.
The downside that can come from buying these securities is precisely why we started StockStory - to isolate the long-term winners from the losers so you can invest with confidence. That said, here are three stocks under $10 to avoid and some other investments you should consider instead.
Quest Resource (QRHC)
Share Price: $1.14
Recycling corporate waste to help companies be more sustainable, Quest Resource (NASDAQ: QRHC) is a provider of waste and recycling services.
Why Do We Avoid QRHC?
- Sales tumbled by 6.9% annually over the last two years, showing market trends are working against its favor during this cycle
- Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital
- 7× net-debt-to-EBITDA ratio shows it’s overleveraged and increases the probability of shareholder dilution if things turn unexpectedly
Quest Resource is trading at $1.14 per share, or 8.1x forward EV-to-EBITDA. Read our free research report to see why you should think twice about including QRHC in your portfolio.
Methode Electronics (MEI)
Share Price: $5.72
Founded in 1946, Methode Electronics (NYSE: MEI) is a global supplier of custom-engineered solutions for Original Equipment Manufacturers (OEMs).
Why Do We Pass on MEI?
- Flat sales over the last five years suggest it must find different ways to grow during this cycle
- Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
- High net-debt-to-EBITDA ratio of 7× could force the company to raise capital at unfavorable terms if market conditions deteriorate
Methode Electronics’s stock price of $5.72 implies a valuation ratio of 6.1x forward EV-to-EBITDA. Dive into our free research report to see why there are better opportunities than MEI.
agilon health (AGL)
Share Price: $9.64
Transforming how doctors care for seniors by shifting financial incentives from volume to outcomes, agilon health (NYSE: AGL) provides a platform that helps primary care physicians transition to value-based care models for Medicare patients through long-term partnerships and global capitation arrangements.
Why Are We Cautious About AGL?
- Estimated sales decline of 8% for the next 12 months implies a challenging demand environment
- Day-to-day expenses have swelled relative to revenue over the last five years as its adjusted operating margin fell by 3.6 percentage points
- Cash-burning tendencies make us wonder if it can sustainably generate shareholder value
At $9.64 per share, agilon health trades at 4.5x forward EV-to-EBITDA. If you’re considering AGL for your portfolio, see our FREE research report to learn more.
High-Quality Stocks for All Market Conditions
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