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Written by Rick Munarriz for The Motley Fool->
Archer Aviation trades for a third of the enterprise value of its similar rival.
Snap is still growing its audience and its revenue per user.
StubHub has fallen on business model concerns, but this broken IPO is currently trading for 6 times next year's profit target.
The allure of low stock prices is obvious, but also potentially dangerous. A lot of stocks with single-digit stock prices are there for a reason. Many of them are also small or iffy outfits that are more likely to continue getting cheaper in the future.
I think I have some ideas that will fare well, and these companies are small -- but not tiny. Archer Aviation (NYSE: ACHR), Snap (NYSE: SNAP), and Stubhub (NYSE: STUB) all have market caps of at least $2 billion. These are the three stocks under $10 that I think are worth buying in May.
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Like the promise of its speedy short-haul flights, Archer Aviation stock has its ups and downs. The market is just starting to crystallize for electric vertical takeoff and landing (eVTOL) aircraft. Archer and rival Joby Aviation (NYSE: JOBY) have captured investor interest ahead of the scaling of their businesses.
There has been some turbulence. Near-term revenue targets have been pared back by Wall Street pros as the industry gets ready to take off, literally and figuratively. The next few years should see a pretty dramatic top-line ramp-up based on current analyst projections.
Archer's Midnight aircraft has a clear path on the growth runway when it does get rolling. Its high-end air taxi service has attracted airline carriers as partners. It will be the official air taxi provider for the 2028 Olympic Games, even buying a small regional airport near Los Angeles International Airport to make sure it can handle its moment in the spotlight. Even the U.S. Air Force is exploring the potential of Archer's aircraft for military missions.
It will take a few years for Archer to become profitable, and it will remain a high-beta stock. However, with higher annual revenue forecasts than Joby starting in 2028 -- but trading at a third of the enterprise value -- this Archer is primed to hit its target when it's time to let the arrows fly.
It's fair to say that Snapchat's parent company Snap isn't as popular as other visual social hubs like Instagram, TikTok, or YouTube. It's probably still more popular than you think.
Did you know that there are 956 million monthly active users on Snapchat? The platform that made filters or augmented reality lenses cool is also still growing. The audience has grown by 5% over the past year. Tack on a 7% increase in average revenue per user, and Snap's revenue rose 12% in its latest quarter. It posted back-to-back years of double-digit revenue growth before that. Wall Street pros see low double-digit growth through at least the next couple of years.
Reported profitability has been a problem, but the losses are narrowing. Analysts see Snap turning a profit by next year. It's generating healthy and positive free cash flow, more than doubling in its latest quarter. On an adjusted basis, Snap stock is actually cheap. The shares are trading for 10 times forward adjusted earnings and just 8 times next year's target.
The popular online marketplace for resale tickets to concerts and sporting events has undergone a few ownership changes over the years. It went public in its present form at $23.50 a share just eight months ago. Since it's on the list of stocks below $10, you already know it has not gone well for its IPO investors.
StubHub has shed nearly two-thirds of its value since going public, but it's been rallying in recent weeks. It wound up on the favorable side of two legal rulings. One win was just StubHub settling a lawsuit alleging that it wasn't disclosing customer costs up front. The hub settled with the Federal Trade Commission for a reasonable $10 million. The other courtroom win came in a case for rival Live Nation (NYSE: LYV). The jury in that case found it liable for monopolistic pricing, and now some states want Live Nation separated from its Ticketmaster subsidiary.
There is still a potentially catastrophic legal headwind for StubHub. The United Kingdom and some Canadian provinces have moved to prevent platforms from selling event tickets above face value. This is naturally the lion's share of any third-party marketplace, so StubHub's business model is at risk if this continues to gain traction closer to home.
It's not the only thing holding StubHub back. After four years of heady growth, revenue dipped 1% last year. If inflation and gas prices keep revving higher, there will likely be less money spent on live events. The good news -- if you stomach the risk of court-mandated obsolescence -- is that you can buy StubHub for just six times next year's projected earnings.
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Rick Munarriz has no position in any of the stocks mentioned. The Motley Fool recommends Live Nation Entertainment. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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