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.
Angi (ANGI)
Forward EV/EBITDA Ratio: 5.5x
Created by IAC’s mergers of Angie’s List and HomeAdvisor, ANGI (NASDAQ: ANGI) operates the largest online marketplace for home services in the US.
Why Do We Think Twice About ANGI?
- Struggled with new customer acquisition as its service requests averaged 22.5% declines
- Sales are expected to decline once again over the next 12 months as it continues working through a challenging demand environment
- Highly competitive market means it’s on the never-ending treadmill of sales and marketing spend
Angi’s stock price of $16.91 implies a valuation ratio of 5.5x forward EV/EBITDA. Dive into our free research report to see why there are better opportunities than ANGI.
Cushman & Wakefield (CWK)
Forward P/E Ratio: 13.3x
With expertise in the commercial real estate sector, Cushman & Wakefield (NYSE: CWK) is a global Chicago-based real estate firm offering a comprehensive range of services to clients.
Why Do We Pass on CWK?
- Flat sales over the last two years suggest it must innovate and find new ways to grow
- Earnings per share fell by 4.3% annually over the last five years while its revenue grew, showing its incremental sales were much less profitable
- Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of 1.9% for the last two years
Cushman & Wakefield is trading at $15.87 per share, or 13.3x forward P/E. To fully understand why you should be careful with CWK, check out our full research report (it’s free).
Omnicom Group (OMC)
Forward P/E Ratio: 8.9x
With a vast network of creative agencies that helped craft some of the most memorable ad campaigns in history, Omnicom Group (NYSE: OMC) is a strategic holding company that provides advertising, marketing, and communications services to many of the world's largest companies.
Why Is OMC Not Exciting?
- Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
- Free cash flow margin dropped by 4.8 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
At $77.05 per share, Omnicom Group trades at 8.9x forward P/E. If you’re considering OMC for your portfolio, see our FREE research report to learn more.
High-Quality Stocks for All Market Conditions
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