Value stocks typically trade at discounts to the broader market, offering patient investors the opportunity to buy businesses when they’re out of favor. The key risk, however, is that these stocks are usually cheap for a reason – five cents for a piece of fruit may seem like a great deal until you find out it’s rotten.

Separating the winners from the value traps is a tough challenge, and that’s where StockStory comes in. Our job is to find you high-quality companies that will stand the test of time. That said, here are three value stocks with poor fundamentals and some alternatives you should consider instead.

PagerDuty (PD)

Forward P/S Ratio: 2.8x

Started by three former Amazon engineers, PagerDuty (NYSE: PD) is a software-as-a-service platform that helps companies respond to IT incidents fast and make sure that any downtime is minimized.

Why Does PD Give Us Pause?

1. Customers had second thoughts about committing to its platform over the last year as its average billings growth of 8.1% underwhelmed
2. Persistent operating losses suggest the business manages its expenses poorly
3. Capital intensity will likely increase as its free cash flow margin is anticipated to drop by 3.3 percentage points over the next year

PagerDuty’s stock price of $15.55 implies a valuation ratio of 2.8x forward price-to-sales. If you’re considering PD for your portfolio, see our FREE research report to learn more.

Best Buy (BBY)

Forward P/E Ratio: 10.1x

With humble beginnings as a stereo equipment seller, Best Buy (NYSE: BBY) now sells a broad selection of consumer electronics, appliances, and home office products.

Why Do We Think Twice About BBY?

1. Weak same-store sales trends over the past two years suggest there may be few opportunities in its core markets to open new locations
2. Commoditized inventory, bad unit economics, and high competition are reflected in its low gross margin of 22.3%
3. Poor expense management has led to an operating margin of 3.3% that is below the industry average

Best Buy is trading at $67 per share, or 10.1x forward P/E. Read our free research report to see why you should think twice about including BBY in your portfolio.

Apogee (APOG)

Forward P/E Ratio: 9.4x

Involved in the design of the Apple Store on Fifth Avenue in New York City, Apogee (NASDAQ: APOG) sells architectural products and services such as high-performance glass for commercial buildings.

Why Are We Hesitant About APOG?

1. Flat sales over the last five years suggest it must find different ways to grow during this cycle
2. Estimated sales for the next 12 months are flat and imply a softer demand environment
3. 2.8 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position

At $40.08 per share, Apogee trades at 9.4x forward P/E. Check out our free in-depth research report to learn more about why APOG doesn’t pass our bar.

Stocks We Like More

The market surged in 2024 and reached record highs after Donald Trump’s presidential victory in November, but questions about new economic policies are adding much uncertainty for 2025.

While the crowd speculates what might happen next, we’re homing in on the companies that can succeed regardless of the political or macroeconomic environment. Put yourself in the driver’s seat and build a durable portfolio by checking out our Top 5 Strong Momentum Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 175% over the last five years.

Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like Sterling Infrastructure (+1,096% five-year return). Find your next big winner with StockStory today for free.