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 bad behavior exhibited by lower-quality companies in this space can spook even the most seasoned professionals, which is why we started StockStory - to separate the good from the bad. That said, here are three stocks under $10 to avoid and some other investments you should consider instead.
Utz (UTZ)
Share Price: $7.75
Tracing its roots back to 1921 when Bill and Salie Utz began making potato chips in their kitchen, Utz Brands (NYSE: UTZ) offers salty snacks such as potato chips, tortilla chips, pretzels, cheese snacks, and ready-to-eat popcorn, among others.
Why Do We Think UTZ Will Underperform?
- Organic sales performance over the past two years indicates the company may need to make strategic adjustments or rely on M&A to catalyze faster growth
- Revenue base of $1.44 billion puts it at a disadvantage compared to larger competitors exhibiting economies of scale
- Underwhelming 0.2% return on capital reflects management’s difficulties in finding profitable growth opportunities
At $7.75 per share, Utz trades at 10x forward P/E. If you’re considering UTZ for your portfolio, see our FREE research report to learn more.
Mister Car Wash (MCW)
Share Price: $6.98
Formerly known as Hotshine Holdings, Mister Car Wash (NYSE: MCW) offers car washes across the United States through its conveyorized service.
Why Do We Steer Clear of MCW?
- Weak same-store sales trends over the past two years suggest there may be few opportunities in its core markets to open new locations
- Cash-burning history makes us doubt the long-term viability of its business model
- 5× net-debt-to-EBITDA ratio makes lenders less willing to extend additional capital, potentially necessitating dilutive equity offerings
Mister Car Wash’s stock price of $6.98 implies a valuation ratio of 14.7x forward P/E. Check out our free in-depth research report to learn more about why MCW doesn’t pass our bar.
TETRA Technologies (TTI)
Share Price: $8.46
Operating across six continents with approximately 40,000 acres of mineral-rich brine leases in Arkansas, TETRA Technologies (NYSE: TTI) provides well completion fluids and water management services to oil and gas operators.
Why Do We Pass on TTI?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 5.3% annually over the last ten years
- Smaller revenue base of $630.9 million means it hasn’t achieved the economies of scale that some industry juggernauts enjoy
- Costly operations and weak unit economics result in an inferior gross margin of 28.8% that must be offset through higher production volumes
TETRA Technologies is trading at $8.46 per share, or 41.6x forward P/E. Read our free research report to see why you should think twice about including TTI in your portfolio.
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