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.
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.
Fresh Del Monte Produce (FDP)
Forward P/E Ratio: 10.2x
Translating to "of the mountain" in Spanish, Fresh Del Monte (NYSE: FDP) is a leader in providing high-quality, sustainably grown fresh fruits and vegetables.
Why Do We Avoid FDP?
- Products fail to spark excitement with consumers, as seen in its flat sales over the last three years
- Gross margin of 8.3% is an output of its commoditized products
- ROIC of 5.1% reflects management’s challenges in identifying attractive investment opportunities
Fresh Del Monte Produce’s stock price of $29.23 implies a valuation ratio of 10.2x forward price-to-earnings. Check out our free in-depth research report to learn more about why FDP doesn’t pass our bar.
Belden (BDC)
Forward P/E Ratio: 13.8x
With its enamel-coated copper wire used in WWI for the Allied forces, Belden (NYSE: BDC) designs, manufactures, and sells electronic components to various industries.
Why Do We Think Twice About BDC?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 2.8% annually over the last two years
- Flat earnings per share over the last two years lagged its peers
Belden is trading at $106.28 per share, or 13.8x forward price-to-earnings. If you’re considering BDC for your portfolio, see our FREE research report to learn more.
AdaptHealth (AHCO)
Forward P/E Ratio: 10.1x
With a network of approximately 680 locations serving patients across all 50 states, AdaptHealth (NASDAQ: AHCO) provides home medical equipment, supplies, and related services to patients with chronic conditions like sleep apnea, diabetes, and respiratory disorders.
Why Does AHCO Worry Us?
- 4.8% annual revenue growth over the last two years was slower than its healthcare peers
- Underwhelming 2.4% return on capital reflects management’s difficulties in finding profitable growth opportunities, and its decreasing returns suggest its historical profit centers are aging
At $10.36 per share, AdaptHealth trades at 10.1x forward price-to-earnings. Dive into our free research report to see why there are better opportunities than AHCO.
Stocks We Like More
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