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

Hain Celestial (HAIN)

Forward P/E Ratio: 12.4x

Sold in over 75 countries around the world, Hain Celestial (NASDAQ: HAIN) is a natural and organic food company whose products range from snacks to teas to baby food.

Why Do We Steer Clear of HAIN?

1. Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
2. Sales were less profitable over the last three years as its earnings per share fell by 32.1% annually, worse than its revenue declines
3. 6× net-debt-to-EBITDA ratio makes lenders less willing to extend additional capital, potentially necessitating dilutive equity offerings

Hain Celestial is trading at $0.62 per share, or 12.4x forward P/E. Dive into our free research report to see why there are better opportunities than HAIN.

MillerKnoll (MLKN)

Forward P/E Ratio: 7.7x

Created through the 2021 merger of industry icons Herman Miller and Knoll, MillerKnoll (NASDAQ: MLKN) designs, manufactures, and distributes interior furnishings for offices, healthcare facilities, educational settings, and homes worldwide.

Why Are We Cautious About MLKN?

1. Sales trends were unexciting over the last two years as its 1.4% annual growth was below the typical business services company
2. Revenue growth over the past five years was nullified by the company’s new share issuances as its earnings per share fell by 7.9% annually
3. Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital

At $14.83 per share, MillerKnoll trades at 7.7x forward P/E. Read our free research report to see why you should think twice about including MLKN in your portfolio.

QuidelOrtho (QDEL)

Forward P/E Ratio: 6.7x

Born from the 2022 merger of Quidel and Ortho Clinical Diagnostics, QuidelOrtho (NASDAQ: QDEL) develops and manufactures diagnostic testing solutions for healthcare providers, from rapid point-of-care tests to complex laboratory instruments and systems.

Why Do We Avoid QDEL?

1. Constant currency growth was below our standards over the past two years, suggesting it might need to invest in product improvements to get back on track
2. 23 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. Eroding returns on capital suggest its historical profit centers are aging

QuidelOrtho’s stock price of $13.50 implies a valuation ratio of 6.7x forward P/E. Check out our free in-depth research report to learn more about why QDEL doesn’t pass our bar.

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