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.
Molson Coors (TAP)
Forward P/E Ratio: 10.2x
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 Does TAP Give Us Pause?
- Falling unit sales over the past two years indicate demand is soft and that the company may need to revise its product strategy
- Sales are projected to remain flat over the next 12 months as demand decelerates from its three-year trend
- Underwhelming 3.5% return on capital reflects management’s difficulties in finding profitable growth opportunities
Molson Coors is trading at $60.50 per share, or 10.2x forward price-to-earnings. Read our free research report to see why you should think twice about including TAP in your portfolio.
Resideo (REZI)
Forward P/E Ratio: 7.7x
Resideo Technologies, Inc. (NYSE: REZI) is a manufacturer and distributor of technology-driven products and solutions for home comfort, energy management, water management, and safety and security.
Why Are We Cautious About REZI?
- Annual revenue growth of 3% over the last two years was below our standards for the industrials sector
- Earnings per share have dipped by 5.4% annually over the past two years, which is concerning because stock prices follow EPS over the long term
- Eroding returns on capital suggest its historical profit centers are aging
At $18.59 per share, Resideo trades at 7.7x forward price-to-earnings. If you’re considering REZI for your portfolio, see our FREE research report to learn more.
Whirlpool (WHR)
Forward P/E Ratio: 8.6x
Credited with introducing the first automatic washing machine, Whirlpool (NYSE: WHR) is a manufacturer of a variety of home appliances.
Why Is WHR Risky?
- Weak unit sales over the past two years suggest it might have to lower prices to accelerate growth
- Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
- 13× net-debt-to-EBITDA ratio makes lenders less willing to extend additional capital, potentially necessitating dilutive equity offerings
Whirlpool’s stock price of $97.23 implies a valuation ratio of 8.6x forward price-to-earnings. Check out our free in-depth research report to learn more about why WHR doesn’t pass our bar.
Stocks We Like More
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Get started by checking out our Top 5 Growth Stocks for this month. 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 Axon (+711% five-year return). Find your next big winner with StockStory today for free.
