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.

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. Keeping that in mind, here are three value stocks with poor fundamentals and some alternatives you should consider instead.

B&G Foods (BGS)

Forward P/E Ratio: 9.4x

Started as a small grocery store in New York City, B&G Foods (NYSE: BGS) is an American packaged foods company with a diverse portfolio of more than 50 brands.

Why Do We Pass on BGS?

1. Products have few die-hard fans as sales have declined by 4.5% annually over the last three years
2. Earnings per share decreased by more than its revenue over the last three years, showing each sale was less profitable
3. High net-debt-to-EBITDA ratio of 7× increases the risk of forced asset sales or dilutive financing if operational performance weakens

B&G Foods’s stock price of $5.25 implies a valuation ratio of 9.4x forward P/E. Dive into our free research report to see why there are better opportunities than BGS.

Fresh Del Monte Produce (FDP)

Forward P/E Ratio: 14.1x

Translating to "of the mountain" in Spanish, Fresh Del Monte (NYSE: FDP) is a leader in providing high-quality, sustainably grown fresh fruits and vegetables.

Why Do We Think FDP Will Underperform?

1. Flat sales over the last three years suggest it must innovate and find new ways to grow
2. Forecasted revenue decline of 2.9% for the upcoming 12 months implies demand will fall off a cliff
3. Gross margin of 8.2% is below its competitors, leaving less money to invest in areas like marketing and production facilities

Fresh Del Monte Produce is trading at $39.89 per share, or 14.1x forward P/E. If you’re considering FDP for your portfolio, see our FREE research report to learn more.

LKQ (LKQ)

Forward P/E Ratio: 10.8x

A global distributor of vehicle parts and accessories, LKQ (NASDAQ: LKQ) offers its customers a comprehensive selection of high-quality, affordably priced automobile products.

Why Should You Sell LKQ?

1. Organic sales performance over the past two years indicates the company may need to make strategic adjustments or rely on M&A to catalyze faster growth
2. Forecasted free cash flow margin suggests the company will fail to improve its cash conversion over the next year
3. Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions

At $34.04 per share, LKQ trades at 10.8x forward P/E. To fully understand why you should be careful with LKQ, check out our full research report (it’s free).

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