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. That said, here are three value stocks with poor fundamentals and some alternatives you should consider instead.
Atkore (ATKR)
Forward P/E Ratio: 9.5x
Protecting the things that power our world, Atkore (NYSE: ATKR) designs and manufactures electrical safety products.
Why Do We Think ATKR Will Underperform?
- Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
- Free cash flow margin dropped by 5.8 percentage points over the last five years, implying the company became more capital intensive as competition picked up
- Diminishing returns on capital suggest its earlier profit pools are drying up
Atkore is trading at $58.19 per share, or 9.5x forward P/E. If you’re considering ATKR for your portfolio, see our FREE research report to learn more.
PROG (PRG)
Forward P/E Ratio: 10.8x
Evolving from its origins as Aaron's, Inc. before rebranding in 2020, PROG Holdings (NYSE: PRG) provides alternative payment solutions including lease-to-own options and second-look credit products for consumers who may not qualify for traditional financing.
Why Is PRG Risky?
- Sales stagnated over the last two years and signal the need for new growth strategies
- Incremental sales over the last five years were much less profitable as its earnings per share fell by 2.2% annually while its revenue grew
- Tangible book value per share tumbled by 13.2% annually over the last five years, showing financials sector trends are working against its favor during this cycle
PROG’s stock price of $35.24 implies a valuation ratio of 10.8x forward P/E. Dive into our free research report to see why there are better opportunities than PRG.
Sallie Mae (SLM)
Forward P/E Ratio: 10.3x
Originally created as a government-sponsored enterprise before privatizing in 2004, Sallie Mae (NASDAQ: SLM) is a financial services company that provides private education loans, savings products, and educational resources to help students and families pay for college.
Why Does SLM Worry Us?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 1.6% annually over the last five years
At $31.02 per share, Sallie Mae trades at 10.3x forward P/E. Read our free research report to see why you should think twice about including SLM in your portfolio.
High-Quality Stocks for All Market Conditions
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