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.
Arrow Electronics (ARW)
Forward P/E Ratio: 11.3x
Founded as a single retail store, Arrow Electronics (NYSE: ARW) provides electronic components and enterprise computing solutions to businesses globally.
Why Is ARW Risky?
- Flat sales over the last five years suggest it must find different ways to grow during this cycle
- Earnings per share have contracted by 32.1% annually over the last two years, a headwind for returns as stock prices often echo long-term EPS performance
- Waning returns on capital imply its previous profit engines are losing steam
Arrow Electronics’s stock price of $132.16 implies a valuation ratio of 11.3x forward P/E. Dive into our free research report to see why there are better opportunities than ARW.
Hewlett Packard Enterprise (HPE)
Forward P/E Ratio: 10.6x
Born from the 2015 split of the iconic Silicon Valley pioneer Hewlett-Packard, Hewlett Packard Enterprise (NYSE: HPE) provides edge-to-cloud technology solutions that help businesses capture, analyze, and act upon their data across hybrid IT environments.
Why Do We Steer Clear of HPE?
- Large revenue base makes it harder to increase sales quickly, and its annual revenue growth of 2.9% over the last five years was below our standards for the business services sector
- Incremental sales over the last two years were much less profitable as its earnings per share fell by 5.9% annually while its revenue grew
- Free cash flow margin shrank by 6.2 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
At $20.74 per share, Hewlett Packard Enterprise trades at 10.6x forward P/E. Read our free research report to see why you should think twice about including HPE in your portfolio.
Columbia Banking System (COLB)
Forward P/B Ratio: 1x
Created through the merger of two Pacific Northwest banking institutions with deep regional roots, Columbia Banking System (NASDAQ: COLB) operates Umpqua Bank, providing commercial, consumer, and wealth management services across eight western states.
Why Is COLB Not Exciting?
- Estimated net interest income growth of 2.3% for the next 12 months implies demand will slow from its four-year trend
- Products and services are facing significant credit quality challenges during this cycle as tangible book value per share has declined by 1.2% annually over the last five years
Columbia Banking System is trading at $24.82 per share, or 1x forward P/B. To fully understand why you should be careful with COLB, check out our full research report (it’s free).
High-Quality Stocks for All Market Conditions
Market indices reached historic highs following Donald Trump’s presidential victory in November 2024, but the outlook for 2025 is clouded by new trade policies that could impact business confidence and growth.
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