Value investing has created more billionaires than any other strategy, like Warren Buffett, who built his fortune by purchasing wonderful businesses at reasonable prices. But these hidden gems are few and far between - many stocks that appear cheap often stay that way because they face structural issues.
This distinction between true value and value traps can challenge even the most skilled investors. Luckily for you, we started StockStory to help you uncover exceptional companies. That said, here are three value stocks with poor fundamentals and some alternatives you should consider instead.
Flowers Foods (FLO)
Forward P/E Ratio: 13.4x
With Wonder Bread as its premier brand, Flower Foods (NYSE: FLO) is a packaged foods company that focuses on bakery products such as breads, buns, and cakes.
Why Does FLO Fall Short?
- Falling unit sales over the past two years indicate demand is soft and that the company may need to revise its product strategy
- Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
- Earnings per share were flat over the last three years and fell short of the peer group average
Flowers Foods is trading at $15.73 per share, or 13.4x forward P/E. Read our free research report to see why you should think twice about including FLO in your portfolio.
Hilton Grand Vacations (HGV)
Forward P/E Ratio: 12.4x
Spun off from Hilton Worldwide in 2017, Hilton Grand Vacations (NYSE: HGV) is a global timeshare company that provides travel experiences for its customers through its timeshare resorts and club membership programs.
Why Is HGV Not Exciting?
- Muted 11.6% annual revenue growth over the last two years shows its demand lagged behind its consumer discretionary peers
- Performance over the past five years shows its incremental sales were much less profitable, as its earnings per share fell by 5.3% annually
- High net-debt-to-EBITDA ratio of 11× increases the risk of forced asset sales or dilutive financing if operational performance weakens
Hilton Grand Vacations’s stock price of $46.14 implies a valuation ratio of 12.4x forward P/E. Dive into our free research report to see why there are better opportunities than HGV.
SAIC (SAIC)
Forward P/E Ratio: 11.8x
With over five decades of experience supporting national security missions, Science Applications International Corporation (NASDAQ: SAIC) provides technical, engineering, and enterprise IT services primarily to U.S. government agencies and military branches.
Why Do We Pass on SAIC?
- Sales tumbled by 1.5% annually over the last two years, showing market trends are working against its favor during this cycle
- Anticipated sales growth of 2.7% for the next year implies demand will be shaky
- ROIC of 11.9% reflects management’s challenges in identifying attractive investment opportunities
At $113.18 per share, SAIC trades at 11.8x forward P/E. To fully understand why you should be careful with SAIC, check out our full research report (it’s free).
Stocks We Like More
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