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 little support and some other investments you should consider instead.

Carnival (CCL)

Forward P/E Ratio: 12.4x

Boasting outrageous amenities like a planetarium on board its ships, Carnival (NYSE: CCL) is one of the world's largest leisure travel companies and a prominent player in the cruise industry.

Why Does CCL Give Us Pause?

1. Performance surrounding its passenger cruise days has lagged its peers
2. Estimated sales growth of 5.1% for the next 12 months implies demand will slow from its two-year trend
3. Negative returns on capital show management lost money while trying to expand the business

Carnival’s stock price of $29.69 implies a valuation ratio of 12.4x forward P/E. Check out our free in-depth research report to learn more about why CCL doesn’t pass our bar.

Gilead Sciences (GILD)

Forward P/E Ratio: 14.5x

From its groundbreaking work in developing the first single-tablet regimens for HIV treatment, Gilead Sciences (NASDAQ: GILD) develops and markets innovative medicines for life-threatening diseases including HIV, viral hepatitis, COVID-19, and cancer.

Why Are We Cautious About GILD?

1. Scale is a double-edged sword because it limits the company’s growth potential compared to its smaller competitors, as reflected in its below-average annual revenue increases of 2.7% for the last two years
2. Day-to-day expenses have swelled relative to revenue over the last five years as its adjusted operating margin fell by 7 percentage points
3. Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability

At $120.85 per share, Gilead Sciences trades at 14.5x forward P/E. To fully understand why you should be careful with GILD, check out our full research report (it’s free for active Edge members).

First Advantage (FA)

Forward P/E Ratio: 13.4x

Processing approximately 100 million background checks annually across more than 200 countries and territories, First Advantage (NASDAQ: FA) provides employment background screening, identity verification, and compliance solutions to help companies manage hiring risks.

Why Does FA Worry Us?

1. Earnings per share have contracted by 9.3% annually over the last three years, a headwind for returns as stock prices often echo long-term EPS performance
2. 16.5 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
3. Short cash runway increases the probability of a capital raise that dilutes existing shareholders

First Advantage is trading at $14.39 per share, or 13.4x forward P/E. Dive into our free research report to see why there are better opportunities than FA.

Stocks We Like More

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