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.
Whirlpool (WHR)
Forward P/E Ratio: 13.4x
Credited with introducing the first automatic washing machine, Whirlpool (NYSE:WHR) is a manufacturer of a variety of home appliances.
Why Should You Sell WHR?
- Disappointing unit sales over the past two years indicate demand is soft and that the company may need to revise its strategy
- Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned
- High net-debt-to-EBITDA ratio of 6× increases the risk of forced asset sales or dilutive financing if operational performance weakens
At $83.63 per share, Whirlpool trades at 13.4x forward P/E. Read our free research report to see why you should think twice about including WHR in your portfolio.
Zebra (ZBRA)
Forward P/E Ratio: 15.1x
Taking its name from the black and white stripes of barcodes, Zebra Technologies (NASDAQ:ZBRA) provides barcode scanners, mobile computers, RFID systems, and other data capture technologies that help businesses track assets and optimize operations.
Why Is ZBRA Not Exciting?
- Muted 1.7% annual revenue growth over the last two years shows its demand lagged behind its business services peers
- Organic revenue growth fell short of our benchmarks over the past two years and implies it may need to improve its products, pricing, or go-to-market strategy
- Free cash flow margin dropped by 7 percentage points over the last five years, implying the company became more capital intensive as competition picked up
Zebra’s stock price of $263.75 implies a valuation ratio of 15.1x forward P/E. Dive into our free research report to see why there are better opportunities than ZBRA.
Ziff Davis (ZD)
Forward P/E Ratio: 4.9x
Originally a pioneering technology publisher founded in 1927 that became famous for PC Magazine, Ziff Davis (NASDAQ:ZD) operates a portfolio of digital media brands and subscription services across technology, shopping, gaming, healthcare, and cybersecurity markets.
Why Should You Dump ZD?
- Sales stagnated over the last five years and signal the need for new growth strategies
- Sales over the last five years were less profitable as its earnings per share fell by 2.2% annually while its revenue was flat
- Free cash flow margin shrank by 14.9 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
Ziff Davis is trading at $37.61 per share, or 4.9x forward P/E. If you’re considering ZD for your portfolio, see our FREE research report to learn more.
High-Quality Stocks for All Market Conditions
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