Best stocks under $5 in Australia (2024)

It's not easy picking quality stocks.

To help identify stock picks that are currently under $5, 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 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.

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.

Data last updated Mar 15, 2024.

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Are stocks under $5 lower quality?

It's a common misconception that a higher price means a share is better quality.

Businesses with a higher share price are in many cases older, more established and have a long history on the ASX. While there's nothing wrong with buying these businesses, due to the size of the business/industry dominance, they might not have room to grow.

Remember in most cases over the long term, share price growth is a reflection of earnings growth. If a business keeps growing its earnings over time, its share price in theory will increase.

On the flip side, finding the right share under $5 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 $5

If you're looking to buy "cheap" stocks you should still follow the same investment formulas and investment themes that you would for any other stock. After all, when it comes to buying shares, you're investing your hard-earned money into a business that you hope will grow.

In order to understand a "fair value" for a share, there's a plethora of different metrics you can use.

It's important to remember each of these have their own limitations and few businesses will tick every single one of them.

Even if a business is on paper ticking every box it does not guarantee the price of the shares will rise.

But here are a 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 it comes to 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.

Buy stocks under $5 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.