Investing on a budget can actually be lucrative. Even with a modest sum like $20, you can acquire a full share (or more) of a company that has the potential to deliver excellent results. However, price and quality aren't the same thing on the stock market, and many stocks that look cheap are anything but.
Sometimes, investing in a stock whose share price seems too good to be true is an ill-advised choice. Here's one stock trading under $20 per share that looks attractive and one that doesn't.
Snap: $15.18 per share
The past few years have been difficult for Snap(NYSE: SNAP). The company faced some headwinds related to a decline in ad spending, its most significant source of revenue. Meanwhile, it's still hard for the company to keep expenses and costs in check, and Snap isn't consistently profitable. However, Snap's latest quarterly update was a breath of fresh air. The company's revenue increased by a healthy 21% year over year to $1.2 billion. That's the best top-line growth rate Snap has recorded in a while.
SNAP Revenue (Quarterly YoY Growth) data by YCharts
There are other positive developments, too. Snap's ecosystem and engagement continue to trend in the right direction. Daily active users climbed by 10% year over year, landing at 422 million. Time spent watching Spotlight increased 125% year over year. Snap will be an increasingly attractive target for advertisers as its ecosystem grows. The company is building a network effect since the more people use its platform, the more attractive it becomes to companies looking to display targeted ads.
Further, Snap is looking to ramp up other money-making opportunities. The company's subscription service, Snapchat+, reached 9 million subscribers as of the end of the first quarter, tripling compared to the year-ago period. There is substantial room for Snap to get more of its daily active users to sign up for Snapchat+. It likely won't capture all -- or even most -- of its users, but considering how fast the service has been gaining adoption, the future looks bright for Snapchat+. Thanks to various popular features on Snapchat, Snap is also a player in the augmented reality realm.
The company has been an innovator since its inception, and considering it continues to add to its user base, it should generate many more avenues for growth -- including in artificial intelligence (AI) -- while fine-tuning its existing ones. At just above $15 per share, and still down substantially over the past few years, Snap looks like a solid stock to buy at current levels.
Chegg: $3.75 per share
AI has been the most attention-grabbing investment trend in the past 18 months. Many businesses are winning the battle, using AI to improve their operations and delivering market-beating returns in the process. Chegg(NYSE: CHGG) isn't one of them. The online education platform is seeing the need for the services it provides decline due to AI chatbots like ChatGPT. Chegg provides expert-prepared textbook and homework solutions, which ChatGPT can do well.
So, it seems the need for Chegg is subsiding. In the first quarter, the company's revenue declined by 7% year over year to $174.4 million. It ended the period with 4.7 million subscribers, a decline of 8% year over year. That's been the story for a while now for Chegg, even predating the AI craze. The company's pandemic boom came to a screeching halt, which led to less-than-exciting financial results. The headwinds it now faces related to AI are just compounding the problem.
And while Chegg hopes to use AI to its advantage by offering a service that combines human expertise and the ingenuity of GPT-4, which remains an unproven quantity. That's why Chegg's share price continues to fall. In my view, it is unlikely to recover anytime soon -- investors should stay far away from the stock.
Should you invest $1,000 in Snap right now?
Before you buy stock in Snap, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Snap wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $740,886!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. TheStock Advisorservice has more than quadrupled the return of S&P 500 since 2002*.
*Stock Advisor returns as of June 10, 2024
Prosper Junior Bakiny has no position in any of the stocks mentioned. The Motley Fool recommends Chegg. The Motley Fool has a disclosure policy.
