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 poor fundamentals and some alternatives you should consider instead.

GEO Group (GEO)

Forward P/E Ratio: 11.3x

With a global footprint spanning three continents and approximately 81,000 beds across 100 facilities, GEO Group (NYSE: GEO) operates secure facilities, processing centers, and reentry services for government agencies in the United States, Australia, and South Africa.

Why Do We Avoid GEO?

1. Flat sales over the last five years suggest it must find different ways to grow during this cycle
2. Performance over the past five years shows each sale was less profitable, as its earnings per share fell by 12% annually
3. 7.3 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position

GEO Group is trading at $20.97 per share, or 11.3x forward P/E. Check out our free in-depth research report to learn more about why GEO doesn’t pass our bar.

Enovis (ENOV)

Forward P/E Ratio: 9.7x

With a focus on helping patients regain or maintain their natural motion, Enovis (NYSE: ENOV) develops and manufactures medical devices for orthopedic care, from injury prevention and pain management to joint replacement and rehabilitation.

Why Do We Steer Clear of ENOV?

1. Annual sales declines of 7.1% for the past five years show its products and services struggled to connect with the market during this cycle
2. Negative returns on capital show that some of its growth strategies have backfired, and its falling returns suggest its earlier profit pools are drying up
3. Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value

Enovis’s stock price of $30.54 implies a valuation ratio of 9.7x forward P/E. If you’re considering ENOV for your portfolio, see our FREE research report to learn more.

WEX (WEX)

Forward P/E Ratio: 10.1x

Originally founded in 1983 as Wright Express to serve the fleet card market, WEX (NYSE: WEX) provides payment processing and business solutions across fleet management, employee benefits, and corporate payments sectors.

Why Does WEX Fall Short?

1. Sales trends were unexciting over the last two years as its 2.6% annual growth was below the typical financials company
2. Earnings growth underperformed the sector average over the last two years as its EPS grew by just 5.2% annually
3. Below-average return on equity indicates management struggled to find compelling investment opportunities

At $160.44 per share, WEX trades at 10.1x forward P/E. To fully understand why you should be careful with WEX, check out our full research report (it’s free).

High-Quality Stocks for All Market Conditions

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