Every investor gets into the stock market to find the best returns. That’s been especially true for the past five years or so, as the Federal Reserve held interest rates at historic low levels. While the central bank has started reversing that policy, it will take time for rates to rise appreciably – and so for the near- to mid-term, stocks are likely to remain the best engine for finding returns-on-investment.
The key to making the most out of a stock investment, however, is not just the return. Investors need to look at the initial buy-in, too, and to remember the old cliché of ‘buy low and sell high.’ There are plenty of stocks floating around with low costs of entry – $10 per share, or even less – that still have an attractive combination of sound fundamentals, analyst approval, and high upside potential. While the low share price entails some added risk – basic math suggests it can magnify gains, but the reverse is also true – it can be worth it when the return potential comes in at 100% or better.
So let’s dip into the TipRanks data and find some low-price stocks that fit this bill. These are equities priced under $10 per share, and Wall Street expects them to double or more in the coming months. Here are details.
Rent the Runway (RENT)
The first stock we’re looking at is Rent the Runway, an interesting e-commerce firm in the contemporary fashion niche. Rent the Runway makes high-end fashion garments, as well as accessories, jewelry, and handbags, available to the average consumer, for rent instead of purchase. The service includes free shipping and returns, a fast turnaround on orders, cleaning coverage, AI-powered fitting technology, and a several membership choices, allowing users to select from 4 to 16 items each month. Memberships are sold on a monthly subscription basis.
This unique company took its idea public last fall, with an IPO on October 27. RENT shares opened at a price of $21, at the top of the expected range, and the company sold 17 million shares, 2 million more than had been expected. The event saw the company raise $357 million gross proceeds.
After the IPO, RENT fell steadily before levelling off at the beginning of 2022. The shares saw a slight uptick this month, although the stock is down 70% since it debuted on the markets.
RENT has been trading publicly long enough to have released one quarterly financial report. The release, for Q3 of fiscal year 2021 (which ended on October 31) covers the quarter during which the company went public, and makes an interesting snapshot of RENT’s initial conditions as public entity.
The company reported 78% year-over-year increase in active subscribers, and a 66% increase in total revenue. The active subscriber total reached 116,833, while the revenue was up to $59 million. RENT reported gross margins of 33.7%, a huge improvement over the 6.8% seen in fiscal 3Q20.
In coverage of RENT for Jefferies, analyst Ashley Helgans writes: “We expect outsized growth from RENT, as the company sits at the intersection of multiple secular trends driving consumer behavior: 1) continued shift to ecom; 2) focus on sustainability; 3) access vs. ownership models; 4) desire for newness and variety; and 5) increase of women in the workforce.”
Getting into some deeper detail, Helgans adds, “Rent the Runway has ~150K subscribers and over 2.5M lifetime customers. In a recent survey, 56% of women expect they will subscribe to fashion in the next five years. The company defines their current opportunity set at 21M women. Today, subscribers represent 0.7% of the company’s defined TAM. On a TTM basis, 400K consumers used Rent the Runway (150K subscribers + 250K nonsubscribers). If 20% of those nonsubscribers convert, this would represent an incremental $90M in revenue.”
In line with this bullish outlook, Helgans rates RENT a Buy with a $13 price target that suggests an impressive 117% upside in the coming months. (To watch Helgans’ track record, click here)
Judging by the consensus breakdown, the analyst community is on the same page. Given that 4 Buys have been issued in the last three months compared to no Holds or Sells, the message is clear: RENT is a Strong Buy. In fact, the average price target is even more upbeat; at 18.75, the figure is expected to yield 12-month returns of 213%. (See RENT stock forecast on TipRanks)
And now let’s turn to a tech company, Cepton. This firm designs and distributes LiDAR systems, the state-of-art, digitally based, laser ranging technology used in applications as varied as satellite mapping and self-driving automobiles. Cepton has patented its Micro Motion Technology, and delivers reliable, scalable LiDAR units capable of delivering long-range, high-resolution 3D perception.
Cepton has been at the forefront of pushing LiDAR into applications beyond autonomous vehicles. The company’s units are used in ‘smart cities,’ where they enable road, rail, pedestrian, and traffic analytics. They are also found in the industrial market, with applications in autonomous robots and ground vehicles.
The automotive sector gets the headlines, however – Cepton was, in September, selected by GM as a key LiDAR provider for the automaker’s 2023 production line.
To raise new capital for its projects, Cepton entered the public markets just last month. On February 9, the company’s proposed SPAC merger with Growth Capital Acquisition Corporation, and the CPTN ticker started trading on February 11, closing that day at $8.23. In its first few days of public trading, the stock spiked to more than $40, before dropping back down; it is now trading for less than half its first day’s close.
Cepton’s SPAC merger briefly gave the company a $1.4 billion valuation; it currently has a market cap of $613 million. The company did not raise as much capital as expected from the merger, due to a high-rate of pre-merger stock redemptions, but the transaction did give Cepton as much as $175 million in available liquidity once completed.
Craig-Hallum’s 5-star analyst Richard Shannon sees Cepton as a potential winner going forward. In his recent note on the subject, he outlines several reasons, including its versatility and its wider market.
“CPTN’s critical IP is in its unique MMT scanning method that has no moving parts and therefore is highly reliable, and a likely reason behind its GM win. While using 905nm edge emitters and APD detectors, CPTN can adapt to other scanning choices should cost/performance/reliability prove attractive over time, a capability we think few other lidar makers have… CPTN is one of a few lidar makers targeting the non-auto market, whereas dozens are going after the auto market. CPTN’s progress here (9 customers/126 engagements/$100M+ pipeline) plus what our checks indicate is industry-leading SW gives us confidence that this can provide a nice bridge to auto sales ramping in C23/24 that others don’t have.”
Shannon’s stance on Cepton is a solid Buy, and his $19 price target indicates his confidence in a strong 369% one-year upside to the stock. (To watch Shannon’s track record, click here)
This new stock holds a Moderate Buy consensus rating from Wall Street’s analysts, based on 3 reviews that include 2 Buys and a single Hold. The shares are priced at $4.05, and their $15 average target implies a 270% upside in the next 12 months. (See CPTN stock forecast on TipRanks)
To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.
Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.