Value investing has created more billionaires than any other strategy, like Warren Buffett, who built his fortune by purchasing wonderful businesses at reasonable prices. But these hidden gems are few and far between - many stocks that appear cheap often stay that way because they face structural issues.

Separating the winners from the value traps is a tough challenge, and that’s where StockStory comes in. Our job is to find you high-quality companies that will stand the test of time. Keeping that in mind, here are three value stocks with poor fundamentals and some alternatives you should consider instead.

MRC Global (MRC)

Forward P/E Ratio: 11.5x

Producing bomb casings and tracks for vehicles during WWII, MRC (NYSE: MRC) offers pipes, valves, and fitting products for various industries.

Why Should You Dump MRC?

1. Products and services are facing end-market challenges during this cycle, as seen in its flat sales over the last five years
2. Performance over the past two years was negatively impacted by new share issuances as its earnings per share dropped by 36.4% annually, worse than its revenue
3. 5.1 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 $13.26 per share, MRC Global trades at 11.5x forward P/E. Dive into our free research report to see why there are better opportunities than MRC.

Winnebago (WGO)

Forward P/E Ratio: 14.3x

Created to provide high-quality, affordable RVs to the post-war American family, Winnebago (NYSE: WGO) is a manufacturer of recreational vehicles, providing a range of motorhomes, travel trailers, and fifth-wheel products for outdoor and adventure lifestyles.

Why Should You Sell WGO?

1. Products and services are facing significant end-market challenges during this cycle as sales have declined by 16.1% annually over the last two years
2. Waning returns on capital imply its previous profit engines are losing steam
3. Short cash runway increases the probability of a capital raise that dilutes existing shareholders

Winnebago is trading at $30.19 per share, or 14.3x forward P/E. Check out our free in-depth research report to learn more about why WGO doesn’t pass our bar.

Silgan Holdings (SLGN)

Forward P/E Ratio: 10.3x

Established in 1987, Silgan Holdings (NYSE: SLGN) is a supplier of rigid packaging for consumer goods products, specializing in metal containers, closures, and plastic packaging.

Why Is SLGN Risky?

1. Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
2. Competitive supply chain dynamics and steep production costs are reflected in its low gross margin of 16.9%
3. Poor free cash flow margin of 1.5% for the last five years limits its freedom to invest in growth initiatives, execute share buybacks, or pay dividends

Silgan Holdings’s stock price of $42.11 implies a valuation ratio of 10.3x forward P/E. To fully understand why you should be careful with SLGN, check out our full research report (it’s free for active Edge members).

Stocks We Like More

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