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.
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. That said, here are three value stocks with poor fundamentals and some alternatives you should consider instead.
Marqeta (MQ)
Forward P/S Ratio: 2.6x
Powering the cards behind innovative fintech services like Block's Cash App, Marqeta (NASDAQ: MQ) provides a cloud-based platform that allows businesses to create customized payment card programs and process card transactions.
Why Is MQ Not Exciting?
- Sales tumbled by 12.1% annually over the last two years, showing industry trends like AI are working against its favor
- High servicing costs result in a relatively inferior gross margin of 70.6% that must be offset through increased usage
- Inability to adjust its cost structure while its revenue declined over the last year led to a 4 percentage point drop in the company’s operating margin
Marqeta’s stock price of $4.08 implies a valuation ratio of 2.6x forward price-to-sales. If you’re considering MQ for your portfolio, see our FREE research report to learn more.
Scorpio Tankers (STNG)
Forward P/E Ratio: 11.9x
Operating one of the youngest fleets in the industry, Scorpio Tankers (NYSE: STNG) is an international provider of marine transportation services, specializing in the shipment of refined petroleum.
Why Does STNG Worry Us?
- Demand for its offerings was relatively low as its number of total vessels has underwhelmed
- Projected sales decline of 1.5% over the next 12 months indicates demand will continue deteriorating
- Earnings per share have contracted by 26.5% annually over the last two years, a headwind for returns as stock prices often echo long-term EPS performance
At $70.38 per share, Scorpio Tankers trades at 11.9x forward P/E. To fully understand why you should be careful with STNG, check out our full research report (it’s free).
OneMain (OMF)
Forward P/E Ratio: 7.5x
Dating back to 1912 and formerly known as Springleaf, OneMain Holdings (NYSE: OMF) provides personal loans, auto financing, and credit cards to nonprime consumers who have limited access to traditional banking services.
Why Does OMF Fall Short?
- Sales trends were unexciting over the last five years as its 4.9% annual growth was below the typical financials company
- Incremental sales over the last five years were less profitable as its 1.8% annual earnings per share growth lagged its revenue gains
- Debt-to-equity ratio of 6.6× shows the firm has taken on excessive debt, leaving little room for error
OneMain is trading at $56.43 per share, or 7.5x forward P/E. Dive into our free research report to see why there are better opportunities than OMF.
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