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.
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. Keeping that in mind, here are three value stocks with poor fundamentals and some alternatives you should consider instead.
OneWater (ONEW)
Forward P/E Ratio: 11.5x
A public company since early 2020, OneWater Marine (NASDAQ:ONEW) sells boats, yachts, and other marine products.
Why Is ONEW Not Exciting?
- Disappointing same-store sales over the past two years show customers aren’t responding well to its product selection and store experience
- Gross margin of 24.2% is an output of its commoditized inventory
- High net-debt-to-EBITDA ratio of 8× could force the company to raise capital at unfavorable terms if market conditions deteriorate
OneWater’s stock price of $16.54 implies a valuation ratio of 11.5x forward P/E. Dive into our free research report to see why there are better opportunities than ONEW.
Keurig Dr Pepper (KDP)
Forward P/E Ratio: 14x
Born out of a 2018 merger between Keurig Green Mountain and Dr Pepper Snapple, Keurig Dr Pepper (NASDAQ:KDP) is a consumer staples powerhouse boasting a portfolio of beverages including sodas, coffees, and juices.
Why Does KDP Fall Short?
- 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 5.9% for the last three years
- Day-to-day expenses have swelled relative to revenue over the last year as its operating margin fell by 6.1 percentage points
- Low returns on capital reflect management’s struggle to allocate funds effectively
At $29.28 per share, Keurig Dr Pepper trades at 14x forward P/E. Check out our free in-depth research report to learn more about why KDP doesn’t pass our bar.
Hewlett Packard Enterprise (HPE)
Forward P/E Ratio: 10.2x
Born from the 2015 split of the iconic Silicon Valley pioneer Hewlett-Packard, Hewlett Packard Enterprise (NYSE:HPE) provides edge-to-cloud technology solutions that help businesses capture, analyze, and act upon their data across hybrid IT environments.
Why Are We Hesitant About HPE?
- Annual sales growth of 4.2% over the last five years lagged behind its business services peers as its large revenue base made it difficult to generate incremental demand
- Incremental sales over the last two years were much less profitable as its earnings per share fell by 7.5% annually while its revenue grew
- Low returns on capital reflect management’s struggle to allocate funds effectively
Hewlett Packard Enterprise is trading at $23.11 per share, or 10.2x forward P/E. Read our free research report to see why you should think twice about including HPE in your portfolio.
Stocks We Like More
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