3 Top Stocks Under $5

Stocks typically have low prices for a reason, but it doesn’t mean the shallow pool is just for speculators. Investors who can recognize some of the traits that the market as a whole is missing can score some pretty big returns if they can stomach the risk…

Groupon (NASDAQ:GRPN)Trivago (NASDAQ:TRVG), and Fitbit (NYSE:FIT) are some of the intriguing stocks that are trading below $5 right now. Investing in growth stocks is often about looking past the broken players trading for pocket change. Let’s see, though, why these low-priced stocks should command your attention.

Groupon — $2.96

The once-iconic flash-sale leader is shrinking, but Groupon isn’t as irrelevant as you may think. It’s true that revenue has declined for 14 consecutive quarters, and that the size of those year-over-year dips is widening. However, you may be surprised to learn that trailing revenue is actually just 18% lower than it was when Groupon’s top line peaked in 2014, even though the shares themselves have fallen by more than 90% off their post-IPO 2011 highs. Turning growth around is a priority for investors, but Groupon isn’t going away anytime soon with its cash-flush balance sheet.

Some of the slide in Groupon’s business is by design, as it shifts away from the low-margin product sales that have propped up the top line at the expense of profitability. The upside to the strategic shift is that Groupon is generating positive and growing adjusted earnings in this climate. Adjusted profit per share has risen from $0.18 last year to a projected $0.22 this year, pricing the stock at just 13 times earnings. The stock is as cheap as some of its deals, and you don’t find too many low-priced stocks with growing bottom lines.

Trivago — $3.64

Inns aren’t out at Trivago, even if the online portal that generates leads for hotel operators and the travel sites that book overnight stays is coming off six straight quarters of declining top-line results. Just as we’re seeing with Groupon, the slowdown in revenue is strategic.

Trivago shares soared 22% in July after posting better-than-expected quarterly results. It is spending less to generate leads for its advertisers, but the average revenue per qualified referral has soared 28% over the past year. The end result here is that Trivago surprised the market with a small profit, reversing a loss from the same period a year earlier. Emphasizing quality over quantity, although it may result in weak revenue growth — something that we’re seeing at both Groupon and Trivago — is the right approach for both companies. We’ll get a fresh read on Trivago when it reports its third-quarter financials in two weeks…

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