Avoid These 3 Cheap Stocks Despite 100%+ Gains

Cheap stocks often trade at low prices for good reasons, signaling underlying problems like weak growth, high debt, or outdated business models that investors have already priced in. Stocks under $10 carry extra risk because they typically come from companies the market has rejected, particularly those that once traded far higher during better times. This rejection reflects legitimate doubts about their ability to recover, making their recent rebounds particularly deceptive.

While genuine bargains can emerge from broad market sell-offs—the classic case of throwing the baby out with the bathwater—the three stocks highlighted here represent the opposite scenario. Despite trading under $10 and having risen over 100% from their 52-week lows, they deserve their low prices due to fundamental weaknesses that make them dangerous investments. The recent gains stem from technical factors like short-covering and retail trader buzz rather than sustainable business improvements.

Peloton Interactive (NASDAQ:PTON), once a pandemic sensation with the stock topping $160 per share, has clawed back from a 52-week low of $4.25 to close recently at $8.68 per share, representing a 104% gain. The rebound stems from cost-cutting measures including layoffs and content rights deals that eased financial pressure, combined with hype around a new CEO from Apple (NASDAQ:AAPL) bringing tech polish. Subscribers ticked up slightly in recent quarters, and adjusted EBITDA turned positive, fueling short-covering and retail trader buzz on social media.

However, at current levels, the risks substantially outweigh any momentum. Revenue continues sliding—down 7.8% last fiscal year—with hardware sales tanking 18% as consumers ditch pricey bikes and treadmills after the pandemic lockdown. Connected fitness demand never fully returned, leaving Peloton with excess inventory and a bloated balance sheet. Debt remains heavy at over $1.7 billion, and free cash flow is negative, burning through cash despite cuts. The company’s decision to introduce a $6,700 Tread+ treadmill, representing a 700% markup from basic models, demonstrates tone-deaf pricing in a budget-conscious market.

While analysts peg fair value near $9, ongoing subscriber churn and no clear path to sustained profitability make another leg down to sub-$5 levels likely. This rebound appears to be just a head fake rather than a genuine recovery story.

BigBear.ai Holdings (NYSE:BBAI), an AI analytics firm targeting defense and logistics, has rocketed 428% from its 52-week low of $1.38 to approximately $7.27 per share. The surge ties to a wave of government deals, including AI orchestration for U.S. Navy maritime operations and airport security pilots, riding the broader AI defense spending boom. Partnerships with Palantir Technologies (NYSE:PLTR) and Autodesk (NASDAQ:ADSK) added credibility, sparking a 51% monthly pop and high options volume as speculators piled in.

Despite this impressive technical performance, buying now represents a significant trap. Revenue grew a mere 2% to $158 million last year, while net losses exploded 318% to $296 million, thanks to R&D bloat and acquisition digestion. The company trades at 17 times sales—steep for a firm with razor-thin margins and $150 million in debt. Second quarter results showed an 18% revenue dip, and forecasts call for wider losses of $0.41 per share this year.

Wall Street’s “Strong Buy” label comes from just three analysts, ignoring execution risks in a crowded AI field where giants like Palantir dominate. With volatility measured by a beta over 3 and no profitability expected until possibly 2027, this rally could evaporate quickly on missed contracts or interest rate hikes. The momentum lacks fundamental substance, making BBAI stock a clear pass for prudent investors.

Plug Power (NASDAQ:PLUG), a hydrogen fuel cell pioneer, has doubled 312% from its 52-week low of $0.69 to $2.83 per share. The lift came from green hydrogen plant milestones, including delivering electrolyzers to Galp’s refinery, and a $1 billion stock sales pact for liquidity. Broader clean energy tailwinds, including tax credit tweaks, boosted sentiment. The stock surged 33% in a single morning with no clear catalyst—likely a short squeeze following an analyst upgrade that doubled its price target to $7.

This technical-driven movement underscores how factors other than fundamentals are driving the stock. Losses hit $2.1 billion last year on $900 million revenue, with negative gross margins and $1.4 billion cash burn. Even with cost cuts targeting breakeven next quarter, dilution from share offerings erodes value—shares outstanding are up 20% from last year. Hydrogen adoption continues to lag, facing cheap natural gas competition, and Plug’s 25-year profit drought persists.

Trading at 6.7 times sales with a beta of 2.26, Plug Power remains overvalued for a serial diluter. The current squeeze may fade rapidly, dragging shares back toward $1 levels, making this volatile trap one investors would be wise to avoid entirely.

Cheap stocks signal market doubt for valid reasons that investors should not ignore. Under $10 names amplify volatility and dilution risks, particularly when their rebounds stem from technical factors rather than business improvements. While true investment gems can emerge from panic selling, Peloton, BigBear.ai, and Plug Power represent overhyped traps rather than genuine opportunities.

Investors seeking sustainable returns should focus on companies with proven cash flow generation rather than chasing momentum plays in fundamentally challenged businesses. The dramatic rebounds in these three stocks—104% for Peloton, 428% for BigBear.ai, and 312% for Plug Power—mask underlying weaknesses that make their current valuations unsustainable. As the market eventually recognizes these fundamental realities, investors who bought during the hype phase could face substantial losses.