There’s nothing intrinsically significant about a share price below $1, or different to a share price above $1, but psychologically most investors would agree that 100 cents or more feels better than 99 cents or less. Here are three stocks that are trading at prices below $1 that look to be good buying.
- DUG Technology (DUG, 80 cents)
Market capitalisation: $94 million
12-month total return: 48.1%
Three-year total return: n/a
Projected FY24 dividend yield: no dividend expected
Analysts’ consensus price target: $1.74 cents (Stock Doctor/Thomson Reuters, two analysts)
Oil and gas computing company DUG Technology provides technology to the global resource sector, built into tailored solutions that combine geoscience and data services, high-performance-computing as-a-service (HPCaaS), and its flagship software, DUG Insight.
Originally named DownUnder GeoSolutions, the company was established in a Perth backyard in 2003. DUG was established to help customers process and image their large seismic datasets, enabling clients to leverage big data and solve complex problems, and presenting the results in ways that were easier to understand. The flagship product, DUG Insight, launched in 2009, was designed to enable better productivity, allowing oil and gas professionals to focus on geoscience, not computer science, with its modern, intuitive features for advanced seismic data interpretation, whether they’re working in land, marine, and ocean-bottom surveys. The data and analysis services are offered to clients directly or tailored to suit their needs through the company’s DUG McCloud platform.
DUG says it designs, owns and operates some of the largest and “greenest” supercomputing installations in the world, with 14 patents in HPC and immersion cooling, a technique in which electronic and computing components (including servers and storage devices) are cooled in a thermally conductive but electrically insulating liquid coolant – thus allowing clients to save on their energy consumption.
The company’s full waveform inversion (FWI) DUG Wave technology is a game-changer, bypassing many of the time-consuming serial steps in the conventional seismic processing and imaging workflow. But part from oil and gas seismic imaging, the company sees major global markets in mining, national security and space, telecommunications, education, and healthcare.
The top 10 clients accounted for 50% of revenue for the last 18 months, and DUG increasingly works on larger, longer-term projects with major clients, while also winning new business. For example, in January, DUG signed a US$3.2 million ($4.6 million) deal with Brazilian oil and gas giant Petrobras to supply it with its “class-leading” interpretation software, DUG Insight, over a five-year period.
DUG was listed at $1.35 a share in August 2020. It sank as low as 36.5 cents in June 2022, but it is on the way back. While not yet profitable, investors can reasonably expect positive EBITDA (earnings before interest, tax, depreciation and amortisation) in FY23. Investors approaching the stock now can turn the share price experience on the ASX to their advantage, because DUG has all the tools for a very successful global business.
- Frontier Digital Ventures (FDV, 69 cents)
Market capitalisation: $262 million
12-month total return: –44.8%
Three-year total return: 2.7 % a year
Projected FY24 dividend yield: no dividend expected
Analysts’ consensus price target: $1.16 (Stock Doctor/Thomson Reuters, three analysts)
The Malaysia-based Frontier Digital Ventures owns and operates online marketplace (that is, online classified ads) businesses in fast-growing emerging markets. Currently, FDV’s portfolio consists of 16 market leading companies, operating across 21 markets in Asia, Latin America and Middle East and North Africa (MENA).
FDV chooses the countries in which it invests based on the size and growth rates of the middle class, and the potential rate of growth of online advertising revenues. Real estate marketplaces represent the largest share of the company’s investment by value, followed by the automotive category. The company focuses on growing transactional revenues, where FDV’s investee company is paid a share of the transaction taking place by means of a commission or revenue share.
FDV has built an impressive record of growth since it floated on the ASX in August 2016, at 50 cents a share. When the company came to the stock exchange it was generating about $16 million in annualised portfolio revenue. That figure came in at just over $145 million in FY22, up 27% for the year: since floating, FDV has increased portfolio revenue 9.8 times.
On a FDV percentage share basis, revenue was a record $82.3 million in FY22, up 37%. All three geographic regions operated on a cashflow-positive basis during the second half of the financial year. For the full-year, FDV posted a maiden positive EBITDA result of $104,000, representing a significant improvement of $2.7 million on FY21.
One potential concern is that the Zameen business in Pakistan, which represents about one-third of portfolio revenue, has become a big bet; as broking firm Morgans puts it, Zameen “arguably remains the key to overall group outcomes.” But the earnings potential of the business and the long-term growth profile make FDV a buy.
FDV reached a high of $1.80 twice in 2021, before sliding to as low as 67 cents earlier this month. From here, investors can reasonably expect the odds of a rising price to be in their favour.
- Janison Education Group (JAN, 32.5 cents)
Market capitalisation: $77 million
12-month total return: –67.5%
Three-year total return: 5.7 % a year
Projected FY24 dividend yield: no dividend expected
Analysts’ consensus price target: 73.5 cents (Stock Doctor/Thomson Reuters, three analysts), 75 cents (FN Arena, two analysts)
Janison’s online education assessment and testing technology is used globally by businesses, governments and education bodies in 177 countries, with more than 6.5 million online assessments delivered every year to school (primary and secondary) and higher education students, professional accreditation candidates and public sector customers.
The core of the business is providing online assessment software, content and associated services (marking, exam management) to schools in Australia, Singapore, the United States and United Kingdom. In FY22, the company reported $36 million operating revenue and $1.4 million of EBITDA.
Janison got a boost from the COVID-induced digital shift within the education sector, and shot from levels around 30 cents at the onset of the pandemic to an all-time high of $1.43 in November 2021. However, the share price was hammered by a series of acquisitions, the costs of consolidating the company’s platform into one core offering, and then the sales and marketing spending that Janison ramped-up in 2020/2021. Again, I see this as a buying opportunity for investors new to the stock.
In the half-year to December, Janison lifted EBITDA by 42% to $2.7 million, driven by improved operational efficiencies and increasing benefits of scale. The gross margin lifted one percentage point to 65%, but to put that figure in context, the gross margin was only 34%. Releasing the result, Janison re-affirmed its medium-term horizon targets of achieving plus-20% compound annual growth (CAGR) in revenue for the next three to five years. However, analysts do not see a net profit and earnings per share (EPS) until at least FY25.
The balance for investors is that Janison is becoming a more scalable, business as it builds recurring revenue and monetises its global reach in major markets. Janison is a long way from its November 2021 high of $1.43 – and more recently has halved since November 2022 – so investor caution is warranted. But with the share price well below analyst targets, Janison looks to be good buying in a global digital education market that is growing strongly.
Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.