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.
Identifying genuine bargains from value traps is something many investors struggle with, which is why we started StockStory - to help you find the best companies. Keeping that in mind, here is one value stock with strong fundamentals and two best left ignored.
Two Value Stocks to Sell:
Cars.com (CARS)
Forward EV/EBITDA Ratio: 3.1x
Originally started as a joint venture between several media companies including The Washington Post and The New York Times, Cars.com (NYSE: CARS) is a digital marketplace that connects new and used car buyers and sellers.
Why Does CARS Worry Us?
- Increasing competition is redirecting attention to other platforms as it failed to grow its dealer customers over the last two years
- Estimated sales growth of 2% for the next 12 months implies demand will slow from its three-year trend
- Earnings per share have dipped by 1.8% annually over the past three years, which is concerning because stock prices follow EPS over the long term
Cars.com’s stock price of $10.61 implies a valuation ratio of 3.1x forward EV/EBITDA. Read our free research report to see why you should think twice about including CARS in your portfolio.
MGP Ingredients (MGPI)
Forward P/E Ratio: 9.6x
Headquartered in Atchison, Kansas, MGP Ingredients (NASDAQ: MGPI) is a leading supplier of high-quality ingredients to the food and beverage industry
Why Should You Dump MGPI?
- Products aren't resonating with the market as its revenue declined by 8.6% annually over the last three years
- Forecasted revenue decline of 12% for the upcoming 12 months implies demand will fall even further
- Overall productivity fell over the last year as its plummeting sales were accompanied by a decline in its operating margin
MGP Ingredients is trading at $24.67 per share, or 9.6x forward P/E. To fully understand why you should be careful with MGPI, check out our full research report (it’s free for active Edge members).
One Value Stock to Watch:
Light & Wonder (LNW)
Forward P/E Ratio: 11.3x
With names as crazy as Ultimate Fire Link Power 4 for its products, Light & Wonder (NASDAQ: LNW) is a gaming company supplying the casino industry with slot machines, table games, and digital games.
Why Could LNW Be a Winner?
- Healthy operating margin of 21.4% shows it’s a well-run company with efficient processes
- Share buybacks catapulted its annual earnings per share growth to 25.9%, which outperformed its revenue gains over the last five years
- Rising returns on capital show the company is starting to reap the benefits of its past investments
At $72.72 per share, Light & Wonder trades at 11.3x forward P/E. Is now a good time to buy? Find out in our full research report, it’s free for active Edge members.
Stocks We Like Even 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-small-cap company Comfort Systems (+782% 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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