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.
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.
Molson Coors (TAP)
Forward P/E Ratio: 8.4x
Sporting an impressive roster of iconic beer brands, Molson Coors (NYSE: TAP) is a global brewing giant with a rich history dating back more than two centuries.
Why Do We Avoid TAP?
- Shrinking unit sales over the past two years indicate demand is soft and that the company may need to revise its product strategy
- Efficiency has decreased over the last year as its operating margin fell by 33.7 percentage points
- Underwhelming -0.7% return on capital reflects management’s difficulties in finding profitable growth opportunities, and its shrinking returns suggest its past profit sources are losing steam
At $46.37 per share, Molson Coors trades at 8.4x forward P/E. Check out our free in-depth research report to learn more about why TAP doesn’t pass our bar.
Constellation Brands (STZ)
Forward P/E Ratio: 11.6x
With a presence in more than 100 countries, Constellation Brands (NYSE: STZ) is a globally renowned producer and marketer of beer, wine, and spirits.
Why Are We Wary of STZ?
- Organic revenue growth fell short of our benchmarks over the past two years and implies it may need to improve its products, pricing, or go-to-market strategy
- Estimated sales decline of 6.2% for the next 12 months implies an even more challenging demand environment
- ROIC of 9% reflects management’s challenges in identifying attractive investment opportunities, and its falling returns suggest its earlier profit pools are drying up
Constellation Brands is trading at $138.14 per share, or 11.6x forward P/E. To fully understand why you should be careful with STZ, check out our full research report (it’s free for active Edge members).
Northern Trust (NTRS)
Forward P/E Ratio: 14.2x
Founded in 1889 during Chicago's post-Great Fire rebuilding boom, Northern Trust (NASDAQ: NTRS) provides wealth management, asset servicing, and banking solutions to corporations, institutions, families, and high-net-worth individuals globally.
Why Does NTRS Give Us Pause?
- Annual revenue growth of 5.3% over the last five years was below our standards for the financials sector
- Earnings per share lagged its peers over the last five years as they only grew by 6.6% annually
Northern Trust’s stock price of $132.16 implies a valuation ratio of 14.2x forward P/E. Dive into our free research report to see why there are better opportunities than NTRS.
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