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Overview

Last week, I wrote Round 4 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 4 were Atlantic Power Corporation (NYSE:AT), Harte-Hanks, Inc. (NYSE:HHS) and Logitech International S.A. (NASDAQ:LOGI). Round 2 and Round 3 stock selections and reviews can be found here and here.

For Round 5, 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

Monster Worldwide, Inc. (NYSE:MWW), provides online and mobile employment solutions as well as direct marketing services worldwide. The company was founded in 1967 and is headquartered in New York.

Financial Performance

Profit Margin (Trailing Twelve Months)-30.67%
Return on Assets (Trailing Twelve Months)2.39%
Return on Equity (Trailing Twelve Months)5.30%
Revenue (Trailing Twelve Months)844.11M
Revenue per share (Trailing Twelve Months)7.59
Quarterly Revenue Growth (Year Over Year)-10.90%

Last year, MWW saw its revenue decrease by over 10%. The company is on pace to see a second straight year of decreased revenue.

Current Valuation and Recent Trading Activity

MWW has a current price-to-earnings value of 13.2x and a price-to-book value of 0.6x with earnings per share of $0.34.

MWW closed Friday at $4.31, $4.74 shy of its 52-week high and just $0.29 higher than its 52-week low. It is trading below both its 200-day moving average of $5.08 and its 50-day moving average of $5.16.

Earnings

MWW reported earnings per share of $0.09 per share last quarter. The company has a one year earnings growth rate of -2.78% and a five year earnings growth rate of -22.20%.

Company Outlook

Last year, MWW reported gross profit that was lower than any of the past four years. The company is on pace for even lower profit this year. Last year, MWW also had negative earnings on the year. It was the second year out of the last four in which the company had negative earnings. It's a trend that appears set to continue as MWW struggles to find ways to grow revenue. Because of this, I recommend avoiding this stock.

Stock No. 2

LivePerson, Inc. (NASDAQ:LPSN), through its technology, provides real-time assistance and expert advice in the United States, Canada, Latin America, Europe, and the Asia-Pacific region. LivePerson, Inc. was founded in 1995 and is headquartered in New York.

Financial Performance

Profit Margin (Trailing Twelve Months)0.61%
Return on Assets (Trailing Twelve Months)1.07%
Return on Equity (Trailing Twelve Months)0.68%
Revenue (Trailing Twelve Months)167.87M
Revenue per share (Trailing Twelve Months)3.02
Quarterly Revenue Growth (Year Over Year)12.30%

LPSN has seen fairly consistent rises in revenue over the past several years ($87 million in 2009, $110 million in 2010, $133 million in 2011, and $157 million in 2012); however, due to its low margins, the company hasn't been able to see the same consistent growth in its bottom line.

Current Valuation and Recent Trading Activity

LPSN has a current price-to-earnings value of 195.6x and a price-to-book value of 3.6x with earnings per share of $0.05.

LPSN closed Friday at $9.61, $9.40 shy of its 52-week high and $1.58 higher than its 52-week low. It is trading below both its 200-day moving average of $11.38 and its 50-day moving average of $9.92.

Earnings

LPSN reported last quarter earnings of -$0.02 per share. The company has a one year earnings growth rate of -126.67%. Earnings have been declining to flat for the past few years and now the company is struggling to keep earnings positive.

Company Outlook

LPSN appears primed to see continued revenue growth. The company has done an admirable job of expanding its global audience. I feel that with its extremely high price to earnings value matched with its declining earnings over the past year, this stock should be avoided for the time being.

Stock No. 3

Ruby Tuesday, Inc. (NYSE:RT), owns, develops, operates, and franchises a chain of dining restaurants in the United States, Guam, and internationally under the Ruby Tuesday brand. These restaurants include Ruby Tuesday, Mozzarella's & Tia's. RT was founded in 1920 and is based in Maryville, Tennessee.

Financial Performance

Profit Margin (Trailing Twelve Months)-3.15%
Return on Assets (Trailing Twelve Months)1.88%
Return on Equity (Trailing Twelve Months)-4.29%
Revenue (Trailing Twelve Months)1.25B
Revenue per share (Trailing Twelve Months)20.50
Gross Profit (Trailing Twelve Months)909.98M

Recently, Ruby Tuesday has seen declining revenue as well as declining same store sales. With RT's low margins, this is a recipe for disaster.

Current Valuation and Recent Trading Activity

RT has a current price-to-earnings value of 39.0x and a price-to-book value of 0.8x with earnings per share of $0.19.

RT closed Friday at $7.18, $2.72 shy of its 52-week high and $0.60 higher than its 52-week low. It is trading below both its 200-day moving average of $8.45 and its 50-day moving average of $8.20.

Earnings

RT's last quarterly earnings report was a $0.07 miss. The company has a one year earnings growth rate of -155.00% and a five year earnings growth rate of -24.00%. Negative earnings are expected from RT's next quarterly report.

Company Outlook

The future doesn't look good for RT. While revenue and same store sales have been declining, RT has continued selling valuable assets (land, etc.). I don't think there is any evidence that the company will turn around its poor revenue and earnings any time soon. Because of this, I recommend avoiding this stock. If you are looking for a low priced stock in the restaurant industry, I think The Wendy's Company (NASDAQ:WEN) offers more growth opportunity and a decent yielding dividend.

Conclusion

Each of the three stocks reviewed above have problems. Whether it is declining revenues, declining to negative earnings, poor margins, or poor management decisions, I don't feel that any of the three has shown signs of turning things around in the near future. In addition, I feel that two of the three stocks are overvalued (LPSN and RT). Because of these reasons, I think these stocks should be avoided for any long-term investor as there are plenty of better options to choose from in the same industries.

Source: Low-Priced Stocks To Avoid: Round 5