Value stocks typically trade at discounts to the broader market, offering patient investors the opportunity to buy businesses when they’re out of favor. The key risk, however, is that these stocks are usually cheap for a reason – five cents for a piece of fruit may seem like a great deal until you find out it’s rotten.
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 little support and some other investments you should consider instead.
RingCentral (RNG)
Forward P/S Ratio: 1.1x
Built on its proprietary Message Video Phone (MVP) platform that unifies multiple communication methods, RingCentral (NYSE: RNG) provides AI-driven cloud communications and collaboration solutions that enable businesses to connect through voice, video, messaging, and contact center services.
Why Should You Sell RNG?
- Products, pricing, or go-to-market strategy may need some adjustments as its 5% average billings growth over the last year was weak
- Estimated sales growth of 5% for the next 12 months implies demand will slow from its two-year trend
- Customer acquisition costs take a while to recoup, making it difficult to justify sales and marketing investments that could increase revenue
RingCentral is trading at $30.22 per share, or 1.1x forward price-to-sales. Read our free research report to see why you should think twice about including RNG in your portfolio.
General Motors (GM)
Forward P/E Ratio: 6.6x
Founded in 1908 by William C. Durant, General Motors (NYSE: GM) offers a range of vehicles and automobiles through brands such as Chevrolet, Buick, GMC, and Cadillac.
Why Does GM Worry Us?
- Weak unit sales over the past two years indicate demand is soft and that the company may need to revise its strategy
- 7.9 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
- 5× net-debt-to-EBITDA ratio shows it’s overleveraged and increases the probability of shareholder dilution if things turn unexpectedly
At $60.30 per share, General Motors trades at 6.6x forward P/E. To fully understand why you should be careful with GM, check out our full research report (it’s free).
CSG (CSGS)
Forward P/E Ratio: 13.2x
Powering billions of critical customer interactions annually, CSG Systems (NASDAQ: CSGS) provides cloud-based software platforms that help companies manage customer interactions, process payments, and monetize their services.
Why Are We Out on CSGS?
- Sales trends were unexciting over the last two years as its 2.6% annual growth was below the typical business services company
- Smaller revenue base of $1.21 billion means it hasn’t achieved the economies of scale that some industry juggernauts enjoy
- Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
CSG’s stock price of $64.88 implies a valuation ratio of 13.2x forward P/E. If you’re considering CSGS for your portfolio, see our FREE research report to learn more.
High-Quality Stocks for All Market Conditions
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