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 climbing an uphill battle and some other investments you should look into instead.

Reynolds (REYN)

Forward P/E Ratio: 14.3x

Best known for its aluminum foil, Reynolds (NASDAQ: REYN) is a household products company whose products focus on food storage, cooking, and waste.

Why Do We Avoid REYN?

1. Shrinking unit sales over the past two years indicate demand is soft and that the company may need to revise its product strategy
2. Sales are projected to be flat over the next 12 months and imply weak demand
3. Commoditized products, bad unit economics, and high competition are reflected in its low gross margin of 25.5%

At $23.08 per share, Reynolds trades at 14.3x forward P/E. To fully understand why you should be careful with REYN, check out our full research report (it’s free).

Arrow Electronics (ARW)

Forward P/E Ratio: 11.9x

Founded as a single retail store, Arrow Electronics (NYSE: ARW) provides electronic components and enterprise computing solutions to businesses globally.

Why Is ARW Risky?

1. Customers postponed purchases of its products and services this cycle as its revenue declined by 3.5% annually over the last two years
2. Sales were less profitable over the last two years as its earnings per share fell by 19.7% annually, worse than its revenue declines
3. Waning returns on capital imply its previous profit engines are losing steam

Arrow Electronics’s stock price of $157.50 implies a valuation ratio of 11.9x forward P/E. Read our free research report to see why you should think twice about including ARW in your portfolio.

Garrett Motion (GTX)

Forward P/E Ratio: 10.6x

A key player in the transition to cleaner vehicles, Garrett Motion (NYSE: GTX) designs and manufactures turbochargers, air compressors, and electric motor technologies for vehicle manufacturers and industrial applications.

Why Is GTX Not Exciting?

1. Annual sales declines of 4% for the past two years show its products and services struggled to connect with the market during this cycle
2. Projected sales growth of 2.2% for the next 12 months suggests sluggish demand
3. Issuance of new shares over the last five years caused its earnings per share to fall by 12.7% annually while its revenue grew

Garrett Motion is trading at $19.41 per share, or 10.6x forward P/E. Check out our free in-depth research report to learn more about why GTX doesn’t pass our bar.

High-Quality Stocks for All Market Conditions

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