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Many investors think of cheap stocks as risky. But for investors who do their homework, low-priced stocks can be huge winners in their portfolios.
As an example, in early 2018, Tandem Diabetes Care (NASDAQ: TNDM) was languishing in the $2.50 range. But then the company’s new diabetes product received favorable rulings from the FDA, and now the price has jumped to just under $33 – representing a 1,193% gain since the beginning of this year.
This dramatic of a move is rare, sure, but for those who do their research, there are gems to be found on the cheap.
But buyer beware, you may need a strong stomach for cheap stocks as timing is everything. With TNDM, if you had bought back in January 2016, you would have suffered a more than 100% decline before shares jumped to their current highs.
As timing is critical, here are two stocks under $5 that look poised to deliver big gains in the next 12 months.
YogaWorks (NASDAQ: YOGA)
YogaWorks (NASDAQ: YOGA) owns and operates a chain of yoga stores, deriving its revenue from in-studio instruction and retail sales, teacher training, workshops, and subscriptions to its digital program on myyogaworks.com.
YOGA went public in early August of last year, debuting at $5.50 per share. And since then, it has not offered a very zen experience for investors as it is down from its IPO price by 75%+.
However, the company has been acquiring new studios at a good clip, and saw its total visits increase 23% in Q2. It is also working on building long-term brand initiatives to set the foundation for the company as a whole as it scales.
And scale it will. There are over 33,000 yoga studios in the U.S., which presents a massive opportunity for YogaWorks to acquire new studios nationwide.
The company is also partnering with employers on their employee wellness programs to gain new customers. One such employer is Google (NASDAQ: GOOGL, GOOG), which has partnered with YOGA’s myyogaworks library to offer its online videos and resources to Google employees.
Analysts covering YOGA have an average 12-month price target on the stock of $5.83, or 378.14% above current prices.
Trivago (NASDAQ: TRVG)
It has been a painful year for Trivago (NASDAQ: TRVG) as shares have slumped nearly 37% so far this year, and over 73% in the last year as revenue growth turned sharply negative.
The biggest issue for Trivago is that it’s having trouble monetizing its traffic, meaning that bidding partners like Booking Holdings (NASDAQ: BKNG) and Expedia (NASDAQ: EXPE), and independent hotel operators, are paying less to get clicks on the site.
But Trivago looks like it may have finally hit a bottom and the company is already taking swift action to refocus on profitability over volume. The company also recently raised its full-year adjusted EBITDA range from a loss of 25 to 50 million euros to between 15 and 30 million euros, signaling a positive adjusted EBITDA in the second half of 2018.
Trivago is currently selling at a steep discount to its rivals in terms of price-to-sales at just 1.1—compare that to Booking’s 7.7 or TripAdvisor’s (NASDAQ: TRIP) at 5.4—and we could see the price of this beaten down stock spike on any positive catalyst.
Right now, the average analyst price target for TRVG is $9.27, indicating possible upside of 109.79%.