Value investing has produced some of the world’s most famous investing billionaires, including Warren Buffett, David Einhorn, and Seth Klarman, who built their fortunes 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.

This distinction between true value and value traps can challenge even the most skilled investors. Luckily for you, we started StockStory to help you uncover exceptional companies. Keeping that in mind, here are three value stocks with poor fundamentals and some alternatives you should consider instead.

Commerce (CMRC)

Forward P/S Ratio: 0.6x

As a founding member of the MACH Alliance advocating for modern tech standards, Commerce (NASDAQ: CMRC) provides a SaaS platform that enables businesses to build and manage online stores, connect with marketplaces, and integrate with point-of-sale systems.

Why Should You Dump CMRC?

1. Customers had second thoughts about committing to its platform over the last year as its average billings growth of 2.3% underwhelmed
2. Estimated sales growth of 3.4% for the next 12 months implies demand will slow from its two-year trend
3. Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital

At $2.79 per share, Commerce trades at 0.6x forward price-to-sales. To fully understand why you should be careful with CMRC, check out our full research report (it’s free).

American Eagle (AEO)

Forward P/E Ratio: 14.9x

With a heavy focus on denim, American Eagle Outfitters (NYSE: AEO) is a specialty retailer offering an assortment of apparel and accessories to young adults.

Why Are We Cautious About AEO?

1. Annual revenue growth of 2.2% over the last three years was below our standards for the consumer retail sector
2. Limited expansion of stores suggests it’s prioritizing efficiency over growth at this stage
3. Low returns on capital reflect management’s struggle to allocate funds effectively, and its shrinking returns suggest its past profit sources are losing steam

American Eagle is trading at $25.48 per share, or 14.9x forward P/E. Read our free research report to see why you should think twice about including AEO in your portfolio.

Alight (ALIT)

Forward P/E Ratio: 2.3x

Born from a corporate spinoff in 2017 to focus on employee experience technology, Alight (NYSE: ALIT) provides human capital management solutions that help companies administer employee benefits, payroll, and workforce management systems.

Why Are We Out on ALIT?

1. Sales tumbled by 3.1% annually over the last five years, showing market trends are working against its favor during this cycle
2. Falling earnings per share over the last two years has some investors worried as stock prices ultimately follow EPS over the long term
3. Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions

Alight’s stock price of $1.36 implies a valuation ratio of 2.3x forward P/E. To fully understand why you should be careful with ALIT, check out our full research report (it’s free).

High-Quality Stocks for All Market Conditions

If your portfolio success hinges on just 4 stocks, your wealth is built on fragile ground. You have a small window to secure high-quality assets before the market widens and these prices disappear.

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Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,326% between June 2020 and June 2025) as well as under-the-radar businesses like the once-small-cap company Comfort Systems (+782% five-year return). Find your next big winner with StockStory today.