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 climbing an uphill battle and some other investments you should look into instead.
Dole (DOLE)
Forward P/E Ratio: 10.5x
Known for its delicious pineapples and Hawaiian roots, Dole (NYSE: DOLE) is a global agricultural company specializing in fresh fruits and vegetables.
Why Are We Wary of DOLE?
- Sales stagnated over the last three years and signal the need for new growth strategies
- Easily substituted products (and therefore stiff competition) result in an inferior gross margin of 8.4% that must be offset through higher volumes
- Poor expense management has led to an operating margin of 2.8% that is below the industry average
Dole’s stock price of $14.57 implies a valuation ratio of 10.5x forward P/E. Check out our free in-depth research report to learn more about why DOLE doesn’t pass our bar.
Quanex (NX)
Forward P/E Ratio: 7.9x
Starting in the seamless tube industry, Quanex (NYSE: NX) manufactures building products like window, door, kitchen, and bath cabinet components.
Why Does NX Fall Short?
- Earnings per share fell by 5.4% annually over the last two years while its revenue grew, showing its incremental sales were much less profitable
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 9.9 percentage points
- Diminishing returns on capital suggest its earlier profit pools are drying up
Quanex is trading at $21.37 per share, or 7.9x forward P/E. Read our free research report to see why you should think twice about including NX in your portfolio.
NCR Atleos (NATL)
Forward P/E Ratio: 9x
Spun off from NCR Voyix in 2023 to focus exclusively on self-service banking technology, NCR Atleos (NYSE: NATL) provides self-directed banking solutions including ATM and interactive teller machine technology, software, services, and a surcharge-free ATM network for financial institutions and retailers.
Why Do We Avoid NATL?
- Annual revenue growth of 1.8% over the last two years was below our standards for the financials sector
- Earnings per share fell by 11.8% annually over the last two years while its revenue grew, showing its incremental sales were much less profitable
At $39.84 per share, NCR Atleos trades at 9x forward P/E. Dive into our free research report to see why there are better opportunities than NATL.
High-Quality Stocks for All Market Conditions
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