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.
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 little support and some other investments you should consider instead.
Arhaus (ARHS)
Forward P/E Ratio: 15.9x
With an aesthetic that features natural materials such as reclaimed wood, Arhaus (NASDAQ: ARHS) is a high-end furniture retailer that sells everything from sofas to rugs to bookcases.
Why Are We Wary of ARHS?
- Weak same-store sales trends over the past two years suggest there may be few opportunities in its core markets to open new locations
- Smaller revenue base of $1.27 billion means it hasn’t achieved the economies of scale that some industry juggernauts enjoy
- Day-to-day expenses have swelled relative to revenue over the last year as its operating margin fell by 5.9 percentage points
Arhaus is trading at $8.94 per share, or 15.9x forward price-to-earnings. To fully understand why you should be careful with ARHS, check out our full research report (it’s free).
Sleep Number (SNBR)
Forward P/E Ratio: 14.5x
Known for mattresses that can be adjusted with regards to firmness, Sleep Number (NASDAQ: SNBR) manufactures and sells its own brand of bedding products such as mattresses, bed frames, and pillows.
Why Are We Hesitant About SNBR?
- Weak same-store sales trends over the past two years suggest there may be few opportunities in its core markets to open new locations
- Estimated sales decline of 6.6% for the next 12 months implies an even more challenging demand environment
- High net-debt-to-EBITDA ratio of 8× increases the risk of forced asset sales or dilutive financing if operational performance weakens
At $6.69 per share, Sleep Number trades at 14.5x forward price-to-earnings. Dive into our free research report to see why there are better opportunities than SNBR.
QuidelOrtho (QDEL)
Forward P/E Ratio: 11.7x
Born from the 2022 merger of Quidel and Ortho Clinical Diagnostics, QuidelOrtho (NASDAQ: QDEL) develops and manufactures diagnostic testing solutions for healthcare providers, from rapid point-of-care tests to complex laboratory instruments and systems.
Why Should You Dump QDEL?
- Constant currency growth was below our standards over the past two years, suggesting it might need to invest in product improvements to get back on track
- Free cash flow margin shrank by 20.5 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
- Eroding returns on capital suggest its historical profit centers are aging
QuidelOrtho’s stock price of $27.37 implies a valuation ratio of 11.7x forward price-to-earnings. Read our free research report to see why you should think twice about including QDEL in your portfolio.
Stocks We Like More
Donald Trump’s victory in the 2024 U.S. Presidential Election sent major indices to all-time highs, but stocks have retraced as investors debate the health of the economy and the potential impact of tariffs.
While this leaves much uncertainty around 2025, a few companies are poised for long-term gains regardless of the political or macroeconomic climate, like 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.
