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. Keeping that in mind, here are three value stocks with poor fundamentals and some alternatives you should consider instead.

Dillard's (DDS)

Forward P/E Ratio: 11.9x

With stores located largely in the Southern and Western US, Dillard’s (NYSE: DDS) is a department store chain that sells clothing, cosmetics, accessories, and home goods.

Why Does DDS Worry Us?

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. Projected sales decline of 1.4% for the next 12 months points to an even tougher demand environment ahead
3. Expenses have increased as a percentage of revenue over the last year as its operating margin fell by 2.2 percentage points

At $383.76 per share, Dillard's trades at 11.9x forward price-to-earnings. If you’re considering DDS for your portfolio, see our FREE research report to learn more.

Knowles (KN)

Forward P/E Ratio: 14.6x

Founded in 1946 and enabling critical technologies in some of the most demanding environments, Knowles (NYSE: KN) designs and manufactures specialized electronic components like high-performance capacitors, microphones, and speakers for medical, defense, and industrial applications.

Why Do We Avoid KN?

1. Products and services are facing significant end-market challenges during this cycle as sales have declined by 2.7% annually over the last four years
2. Sales are projected to tank by 14.3% over the next 12 months as its demand continues evaporating
3. Falling earnings per share over the last five years has some investors worried as stock prices ultimately follow EPS over the long term

Knowles is trading at $16.39 per share, or 14.6x forward price-to-earnings. To fully understand why you should be careful with KN, check out our full research report (it’s free).

Dun & Bradstreet (DNB)

Forward P/E Ratio: 7.4x

Identified by its proprietary D-U-N-S Number system that serves as a unique identifier for businesses worldwide, Dun & Bradstreet (NYSE: DNB) provides business decisioning data and analytics that help companies evaluate credit risks, verify suppliers, enhance sales efforts, and manage compliance requirements.

Why Do We Think Twice About DNB?

1. Muted 3.5% annual revenue growth over the last two years shows its demand lagged behind its business services peers
2. Earnings per share have dipped by 1.1% annually over the past two years, which is concerning because stock prices follow EPS over the long term
3. ROIC of 0.2% reflects management’s challenges in identifying attractive investment opportunities

Dun & Bradstreet’s stock price of $8.11 implies a valuation ratio of 7.4x forward price-to-earnings. Read our free research report to see why you should think twice about including DNB in your portfolio.

Stocks We Like More

The elections are now behind us. With rates dropping and inflation cooling, many analysts expect a breakout market - and we’re zeroing in on the stocks that could benefit immensely.

Take advantage of the rebound by checking 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 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 United Rentals (+322% five-year return). Find your next big winner with StockStory today for free.