The low valuation multiples for value stocks provide a margin of safety that growth stocks rarely offer. However, the challenge lies in determining whether these cheap assets are genuinely undervalued or simply on sale due to their potentially deteriorating business models.
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 climbing an uphill battle and some other investments you should look into instead.
Kraft Heinz (KHC)
Forward P/E Ratio: 9.6x
The result of a 2015 mega-merger between Kraft and Heinz, Kraft Heinz (NASDAQ: KHC) is a packaged foods giant whose products span coffee to cheese to packaged meat.
Why Is KHC Risky?
- Shrinking unit sales over the past two years show it’s struggled to move its products and had to rely on price increases
- Efficiency has decreased over the last year as its operating margin fell by 41.7 percentage points
- Below-average returns on capital indicate management struggled to find compelling investment opportunities, and its decreasing returns suggest its historical profit centers are aging
Kraft Heinz is trading at $25.07 per share, or 9.6x forward P/E. Read our free research report to see why you should think twice about including KHC in your portfolio.
AT&T (T)
Forward P/E Ratio: 12.1x
Founded by Alexander Graham Bell, AT&T (NYSE: T) is a multinational telecomm conglomerate providing a range of communications and internet services.
Why Do We Avoid T?
- Annual sales declines of 6.7% for the past five years show its products and services struggled to connect with the market
- Earnings per share decreased by more than its revenue over the last five years, showing each sale was less profitable
- Capital intensity will likely ramp up in the next year as its free cash flow margin is expected to contract by 2.4 percentage points
AT&T’s stock price of $25.57 implies a valuation ratio of 12.1x forward P/E. To fully understand why you should be careful with T, check out our full research report (it’s free for active Edge members).
Encore Capital Group (ECPG)
Forward P/E Ratio: 6.7x
Operating in the often misunderstood world of debt collection since 1999, Encore Capital Group (NASDAQ: ECPG) purchases portfolios of defaulted consumer debt at deep discounts and works with individuals to recover these obligations while helping them toward financial recovery.
Why Do We Think Twice About ECPG?
- Sales stagnated over the last five years and signal the need for new growth strategies
- Sales over the last five years were less profitable as its earnings per share fell by 49% annually while its revenue was flat
- 13× net-debt-to-EBITDA ratio makes lenders less willing to extend additional capital, potentially necessitating dilutive equity offerings
At $44.07 per share, Encore Capital Group trades at 6.7x forward P/E. If you’re considering ECPG for your portfolio, see our FREE research report to learn more.
Stocks We Like More
Donald Trump’s April 2025 "Liberation Day" tariffs sent markets into a tailspin, but stocks have since rebounded strongly, proving that knee-jerk reactions often create the best buying opportunities.
The smart money is already positioning for the next leg up. Don’t miss out on the recovery - check out our Top 6 Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 183% over the last five years (as of March 31st 2025).
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-micro-cap company Tecnoglass (+1,754% five-year return). Find your next big winner with StockStory today for free. Find your next big winner with StockStory today. Find your next big winner with StockStory today
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