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.
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.
Caleres (CAL)
Forward P/E Ratio: 3.6x
The owner of Dr. Scholl's, Caleres (NYSE:CAL) is a footwear company offering a range of styles.
Why Do We Pass on CAL?
- Products and services have few die-hard fans as sales have declined by 1.1% annually over the last five years
- Projected sales for the next 12 months are flat and suggest demand will be subdued
- ROIC of 3% reflects management’s challenges in identifying attractive investment opportunities
At $15.73 per share, Caleres trades at 3.6x forward price-to-earnings. Dive into our free research report to see why there are better opportunities than CAL.
Terex (TEX)
Forward P/E Ratio: 8.1x
With humble beginnings as a dump truck company, Terex (NYSE:TEX) today manufactures lifting and material handling equipment designed to move and hoist heavy goods and materials.
Why Do We Think Twice About TEX?
- Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
- High input costs result in an inferior gross margin of 20.4% that must be offset through higher volumes
- 1.5 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
Terex is trading at $41.06 per share, or 8.1x forward price-to-earnings. Read our free research report to see why you should think twice about including TEX in your portfolio.
Premier (PINC)
Forward P/E Ratio: 14.6x
Founded in 1968, Premier (NASDAQ:PINC) offers tech-forward products for healthcare organizations focused on cost management, quality improvement, and supply chain optimization.
Why Should You Sell PINC?
- Annual sales declines of 6.9% for the past two years show its products and services struggled to connect with the market during this cycle
- Sales are projected to tank by 15.9% over the next 12 months as its demand continues evaporating
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
Premier’s stock price of $18.34 implies a valuation ratio of 14.6x forward price-to-earnings. Check out our free in-depth research report to learn more about why PINC doesn’t pass our bar.
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