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.
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.
Skechers (SKX)
Forward P/E Ratio: 14.8x
Synonymous with "dad shoe", Skechers (NYSE:SKX) is a footwear company renowned for its comfortable, stylish, and affordable shoes for all ages.
Why Is SKX Risky?
- 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
- Estimated sales growth of 7.4% for the next 12 months implies demand will slow from its two-year trend
- Low free cash flow margin of 4.4% for the last two years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders
Skechers’s stock price of $63.21 implies a valuation ratio of 14.8x forward P/E. Check out our free in-depth research report to learn more about why SKX doesn’t pass our bar.
Toll Brothers (TOL)
Forward P/E Ratio: 8.1x
Started by two brothers who started by building and selling just one home in Pennsylvania, today Toll Brothers (NYSE:TOL) is a luxury homebuilder across the United States.
Why Does TOL Fall Short?
- Product roadmap and go-to-market strategy need to be reconsidered as its backlog has averaged 4.6% declines over the past two years
- Demand will likely be soft over the next 12 months as Wall Street’s estimates imply tepid growth of 1.9%
- 15.8 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
At $116.75 per share, Toll Brothers trades at 8.1x forward P/E. Dive into our free research report to see why there are better opportunities than TOL.
Bristol-Myers Squibb (BMY)
Forward P/E Ratio: 7x
With roots dating back to 1887 and a transformative merger in 1989 that gave the company its current name, Bristol-Myers Squibb (NYSE:BMY) discovers, develops, and markets prescription medications for serious diseases including cancer, blood disorders, immunological conditions, and cardiovascular diseases.
Why Does BMY Worry Us?
- Large revenue base makes it harder to increase sales quickly, and its annual revenue growth of 1.9% over the last two years was below our standards for the healthcare sector
- Projected sales decline of 4.5% for the next 12 months points to a tough demand environment ahead
- Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
Bristol-Myers Squibb is trading at $46.80 per share, or 7x forward P/E. To fully understand why you should be careful with BMY, check out our full research report (it’s free).
Stocks We Like More
Trump’s April 2024 tariff bombshell triggered a massive market selloff, but stocks have since staged an impressive recovery, leaving those who panic sold on the sidelines.
Take advantage of the rebound by checking out our Top 5 Strong Momentum Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 183% over the last five years (as of March 31st 2025).
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 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 for free. Find your next big winner with StockStory today. Find your next big winner with StockStory today
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