Best growth stocks under $10 in Australia (2023)

The current market volatility is creating new opportunities for investors. With share markets being off to their worst start since WW2 last year, many investors are being scared out of the market.

This is especially the case with smaller, less-established stocks. But that doesn't mean you should avoid this section of the market altogether. Instead, finding the hidden gem in a volatile market could help your portfolio outperform.

For some investors, that means identifying high quality stocks that fall below a certain price range. To help out, we've created a list of stocks to watch that are priced under $10.

What's the methodology behind our "best stocks under $10"?

To help identify stock picks for 2023 that are currently under $10, we used Finder's proprietary algorithm to filter Australian-listed companies that have strong fundamentals.

We take into account historical prices, dividends, revenue growth, (low) price volatility and profit margins, which might indicate a quality stock.

To avoid the more speculative stocks, we only include companies with a market cap of more than $1 billion. We filtered out stocks that have been listed on the ASX for less than 5 years to better compare historical data.

Again, this doesn't mean these are the best stocks for you or your personal situation. Always do your own research and chat with a professional when in doubt.

Stocks under $10 to watch

This list of stocks was last updated July 21, 2023.

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Buy stocks under $10 through an online broker

Important: The standard brokerage fee displayed is the trade cost for new customers to purchase $1,000 of either Australian or US shares. Where a platform charges different fees for both US and Australian shares we show the lower of the two. Where both CHESS sponsored and custodian shares are offered, we display the cheapest option.

Should I buy stocks under $10?

It really depends on the business and your own personal circumstances.

It's important to remember that a lower priced stock doesn't necessarily mean it's 'cheap' or a 'good deal'.

By that same token, you shouldn't just assume a higher priced stock is a better buy than a lower priced stock. This isn't always the case.

Generally speaking, stocks have a higher price for 2 reasons:

1. They are older, more established businesses
2. They are currently popular

While there's nothing wrong with buying more established businesses, it may mean it's harder for prices to keep growing.

After all, in an efficient market, long-term share price growth reflects earnings growth. If the share price is already pricing in strong earnings growth, there's nowhere to go.

On the flipside, finding the right share under $10 could mean it is smaller but has a greater opportunity to grow. It could even take market share from the larger incumbents.

It is also not always the case that a smaller company based on its share price is in a worse position financially than larger businesses. In some instances, it is simply the market mispricing a business. Once again, though, it is important to find the right smaller company.

What to look for in stocks under $10

Regardless of what you are looking to buy, you should follow some basic pricing models to work out whether or not a share is "fair value".

After all, when buying shares, you're investing your hard-earned money into a business that you hope will grow, so you should have a basic understanding of what you own and why you own it.

Most investors use pricing models to work out roughly what the fair value of a share could be. It's important to remember each of these have their own limitations and few businesses will tick every single key metric.

And even if the business did, it does not guarantee the share price will rise.

But here are few tips you can look out for:

• Earnings per share (EPS): EPS is calculated by dividing company profits by the outstanding shares of common stocks. The valuation should give you an indication of a company's profits.
• Price to earnings ratio (P/E ratio): In short, the price to earnings for stock is how much the market is willing to pay today for a stock's past or future earnings. It is done by dividing a company's share price by its annual earnings per share. If, for example, a company is priced at $10 per share and its earnings per share is $1, then the P/E ratio would be 10/1 = 10. Theoretically, a lower P/E ratio means the company is cheap.
• Price to sales (P/S): P/S is calculated for businesses that are not yet profitable. It is calculated by dividing the number of outstanding shares by the total sales or revenue over the last 12 months. The lower the P/S ratio, the more attractive the investment.
• Profitability ratios: Not all businesses need to be profitable today to make for a good investment. But they need to have a path towards profitability. When measuring profitability, investors can use gross profits, operating profits, net profits, cash flow or even earnings before interest, taxes, and depreciation and amortisation (EBITDA).
• Debt ratio: This is especially important in a rising interest rate world. It is worked out by dividing the total debt by total assets. A debt ratio of greater than 1 suggests the company has more debt than its assets.

Risks for investing in shares under $10

Buying shares always comes with some form of risk and you should never invest money that you might need over a short period of time.

And when buying stocks under $10, these risks may be magnified.

This is due to the size of the stock. Being smaller and having fewer shares on offer, it takes less volume to move a price. For smaller, less liquid stocks, at times a single trade can meaningfully impact the business's share price.

Here are the basic risks of share trading:

Volatility - The price of shares constantly fluctuates. With smaller shares, the price can dramatically fall, meaning investors lose their capital. Shares can even go to zero.

Unexpected events - Unfortunately, even the most well-thought-out plans come with risk. Company-specific bad news, changing economies and "black swan events" can all impact a share price. Just look at COVID-19, few predicted how the business landscape would change.

Not knowing what you own - Every share listed will have a story and will try to convince you to invest in them. Not knowing what you own or why you own it is a risk for investors.

Opportunity cost - Most of us have to make choices with our money. Choosing a stock that underperforms also has an opportunity cost attached with it. This is because we have missed out on buying a better performing stock.

Liquidity risk - Liquidity is the ease of which you can convert assets to cash. While stocks and bonds are usually liquid, in smaller shares they can be more illiquid. As such, you might have to accept a lower price in order to sell the asset quickly.