Value investing has created more billionaires than any other strategy, like Warren Buffett, who built his fortune 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. That said, here are three value stocks with little support and some other investments you should consider instead.
Academy Sports (ASO)
Forward P/E Ratio: 7.6x
Founded in 1938 as a tire shop before expanding into fishing equipment, Academy Sports & Outdoor (NASDAQ: ASO) sells a broad selection of sporting goods but is still known for its outdoor activity merchandise.
Why Do We Think Twice About ASO?
- Lackluster 4.2% annual revenue growth over the last five years indicates the company is losing ground to competitors
- Poor same-store sales performance over the past two years indicates it’s having trouble bringing new shoppers into its brick-and-mortar locations
- Day-to-day expenses have swelled relative to revenue over the last year as its operating margin fell by 1.9 percentage points
Academy Sports’s stock price of $49.71 implies a valuation ratio of 7.6x forward price-to-earnings. If you’re considering ASO for your portfolio, see our FREE research report to learn more.
Great Lakes Dredge & Dock (GLDD)
Forward P/E Ratio: 11.4x
Founded as Lydon & Drews dredging company, Great Lakes Dredge & Dock (NASDAQ: GLDD) provides dredging services, land reclamation, and coastal protection projects in the United States and internationally.
Why Is GLDD Risky?
- Muted 1.4% annual revenue growth over the last five years shows its demand lagged behind its industrials peers
- Free cash flow margin shrank by 11.6 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
Great Lakes Dredge & Dock is trading at $9.23 per share, or 11.4x forward price-to-earnings. Dive into our free research report to see why there are better opportunities than GLDD.
Flex (FLEX)
Forward P/E Ratio: 13.6x
Originally known as Flextronics until its 2016 rebranding, Flex (NASDAQ: FLEX) is a global manufacturing partner that designs, engineers, and builds products for companies across industries from medical devices to solar trackers.
Why Are We Cautious About FLEX?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 5% annually over the last two years
- Demand will likely be soft over the next 12 months as Wall Street’s estimates imply tepid growth of 1.8%
- Poor free cash flow margin of 1.8% for the last five years limits its freedom to invest in growth initiatives, execute share buybacks, or pay dividends
At $37.50 per share, Flex trades at 13.6x forward price-to-earnings. Check out our free in-depth research report to learn more about why FLEX doesn’t pass our bar.
Stocks We Like More
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