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Overview

Last week, I wrote Round 3 of this article in which I listed and reviewed three low priced stocks that I believed should be avoided. The stocks I reviewed in Round 3 were A.H. Belo Corporation (AHC), Frontier Communications Corporation (FTR) and Windstream Corporation (WIN). Round 1 and Round 2 stock selections and reviews can be found here and here.

For Round 4, I will once again focus on stocks that are currently priced at under $10. In determining why I find that these stocks should be avoided, I will be looking at each company's financial performance, current valuation, recent trading activity, earnings and future outlook.

Stock No. 1

Atlantic Power Corporation (AT) operates as an electric power and infrastructure company throughout areas of the United States and Canada. The company was founded in 2004 and is headquartered in Boston, Massachusetts.

Financial Performance

Profit Margin (Trailing Twelve Months)-12.99%
Return on Assets (Trailing Twelve Months)-0.52%
Return on Equity (Trailing Twelve Months)-4.48%
Revenue (Trailing Twelve Months)476.48M
Revenue per share (Trailing Twelve Months)4.03
Quarterly Revenue Growth (Year Over Year)-10.50%

For Q2, AT saw an increase of $23.1 million in project income. The company also achieved its goal of accumulating $150 million in excess cash.

Current Valuation and Recent Trading Activity

AT has a current price-to-sales value of 0.9x and a price-to-book value of 0.5x with a negative earnings per share of $0.46.

Atlantic Power closed Friday at $4.04, $11.14 shy of its 52-week high and just $0.23 higher than its 52-week low. It is trading well below its 200-day moving average of $5.77 and its 50-day moving average of $4.22.

Earnings

AT reported negative earnings per share of $0.21 in its last quarterly report. This was the 8th quarterly report in a row in which the company reported negative earnings per share.

Company Outlook

Earlier in the year, Atlantic Power slashed its dividend by 66 percent. Considering the associated payout ratio and negative earnings, it was the right move to make. It is one of several moves (such as selling off non-core assets) that AT has made in an effort to turn the company around. However, AT has been unable to translate these moves into a positive bottom line. Until they are able to do so, I recommend avoiding this stock.

Stock No. 2

Harte-Hanks, Inc. (HHS) is a worldwide direct and targeted marketing company. It provides direct and digital marketing services as well as shopper advertising opportunities to local, regional, national and international consumer and business-to-business marketers. The company was founded in 1970 and is headquartered in San Antonio, Texas.

Financial Performance

Profit Margin (Trailing Twelve Months)4.55%
Return on Assets (Trailing Twelve Months)5.88%
Return on Equity (Trailing Twelve Months)11.58%
Revenue (Trailing Twelve Months)$758.63M
Revenue per share (Trailing Twelve Months)$12.11
Quarterly Revenue Growth (Year Over Year)-0.70%

For the first six months of 2013, HHS saw a decrease in revenues compared to the same period last year. However, the decreases in operating expenses were even greater, which resulted in an increased bottom line compared to the first six months of 2012.

Current Valuation and Recent Trading Activity

HHS has a current price-to-earnings value of 14.4x and a price-to-book value of 1.7x with earnings per share of $0.64.

HHS closed Friday at $9.23, $0.89 shy of its 52-week high and $4.09 higher than its 52-week low. It is trading above its 200-day moving average of $8.38 but below its 50-day moving average of $9.52.

Earnings

Last quarter, HHS reported earnings of $0.15 per share, which was three cents higher per share than analyst estimates. It was the third quarterly report in a row that HHS reported a beat on earnings. However, the company still has a negative one year earnings growth rate of 7.14% and a negative five year earnings growth rate of 9.90%.

Company Outlook

HHS has a relatively safe quarterly dividend that pays just under 4% annually. The company recently changed CEOs and has made some moves to help improve its past poor performance. However, there are still several challenges facing the company including the lack of growth in its industry. Finding ways to increase revenue is going to be difficult for HSS and until it shows signs of being able to do just that, I recommend avoiding this stock.

Stock No. 3

Logitech International S.A. (LOGI) designs, manufactures and markets innovative peripherals such as internet video cameras, mice and trackballs, keyboards, audio and telephony products, interactive gaming devices and 3D controllers. The company was founded in 1981 and is headquartered in Switzerland.

Financial Performance

Profit Margin (Trailing Twelve Months)-8.22%
Return on Assets (Trailing Twelve Months)1.64%
Return on Equity (Trailing Twelve Months)-20.11%
Revenue (Trailing Twelve Months)$2.11B
Revenue per share (Trailing Twelve Months)$13.34
Quarterly Revenue Growth (Year Over Year)2.00%

LOGI has seen declining revenues over the past few years. For fiscal year ending 03/31/11, revenues were $2.36 billion, for 2012, revenues were $2.32 billion, and for 2013 revenues were $2.10 billion.

Current Valuation and Recent Trading Activity

LOGI has a current price-to-earnings value of 42.2x and a price-to-book value of 1.6x with earnings per share of $0.17.

LOGI closed Friday at $7.17, $3.12 shy of its 52-week high and $0.93 higher than its 52-week low. It is trading above both its 200-day moving average of $6.87 and its 50-day moving average of $6.97.

Earnings

LOGI reported earnings per share of $0.02 in its latest quarterly report. It was a beat compared to the negative estimate that was expected, but was still far from great. Logitech has a negative one year earnings growth rate of 69.05% and a negative five year earnings growth rate of 27.80%.

Company Outlook

LOGI hasn't performed well recently and I don't see that changing any time soon. There just doesn't seem to be enough growth opportunities available for LOGI to see long-term increases in revenue. Because of LOGI's inability to produce consistent positive earnings, I recommend avoiding this stock.

Conclusion

Each of the companies (AT, HHS and LOGI) reviewed above all have negative earnings growth over the past several years. None of the companies has shown an ability to reverse this trend. I don't think any of the three companies are in danger of a total collapse anytime soon. However, at the current time (and at each stock's current price), I feel that each should be avoided.

Source: Low-Priced Stocks To Avoid: Round 4