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.
This distinction between true value and value traps can challenge even the most skilled investors. Luckily for you, we started StockStory to help you uncover exceptional companies. Keeping that in mind, here are three value stocks with poor fundamentals and some alternatives you should consider instead.
Polaris (PII)
Forward P/E Ratio: 13.6x
Founded in 1954, Polaris (NYSE: PII) designs and manufactures high-performance off-road vehicles, snowmobiles, and motorcycles.
Why Should You Dump PII?
- Annual sales declines of 8.2% for the past two years show its products and services struggled to connect with the market
- Earnings per share fell by 10.4% annually over the last five years while its revenue grew, showing its incremental sales were much less profitable
- Waning returns on capital imply its previous profit engines are losing steam
Polaris is trading at $40.94 per share, or 13.6x forward price-to-earnings. Check out our free in-depth research report to learn more about why PII doesn’t pass our bar.
Builders FirstSource (BLDR)
Forward P/E Ratio: 10.8x
Headquartered in Irving, TX, Builders FirstSource (NYSE: BLDR) is a construction materials manufacturer that offers a variety of lumber and lumber-related building products.
Why Does BLDR Worry Us?
- Sales tumbled by 15.1% annually over the last two years, showing market trends are working against its favor during this cycle
- Earnings per share have dipped by 21.2% 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 $124.94 per share, Builders FirstSource trades at 10.8x forward price-to-earnings. To fully understand why you should be careful with BLDR, check out our full research report (it’s free).
Gibraltar (ROCK)
Forward P/E Ratio: 12.2x
Gibraltar (NASDAQ: ROCK) makes renewable energy, agriculture technology and infrastructure products. Its mission statement is to make everyday living more sustainable.
Why Are We Hesitant About ROCK?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 3% annually over the last two years
- Gross margin of 25% reflects its high production costs
Gibraltar’s stock price of $58.19 implies a valuation ratio of 12.2x forward price-to-earnings. If you’re considering ROCK for your portfolio, see our FREE research report to learn more.
Stocks We Like More
With rates dropping, inflation stabilizing, and the elections in the rearview mirror, all signs point to the start of a new bull run - and we’re laser-focused on finding the best stocks for this upcoming cycle.
Put yourself in the driver’s seat 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.
