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.
Identifying genuine bargains from value traps is something many investors struggle with, which is why we started StockStory - to help you find the best companies. Keeping that in mind, here are three value stocks with little support and some other investments you should consider instead.
Energizer (ENR)
Forward P/E Ratio: 5.9x
Masterminds behind the viral Energizer Bunny mascot, Energizer (NYSE: ENR) is one of the world's largest manufacturers of batteries.
Why Does ENR Give Us Pause?
- Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
- Anticipated sales growth of 1.3% for the next year implies demand will be shaky
- Free cash flow margin dropped by 4.6 percentage points over the last year, implying the company became more capital intensive as competition picked up
Energizer is trading at $21.51 per share, or 5.9x forward P/E. Read our free research report to see why you should think twice about including ENR in your portfolio.
Caleres (CAL)
Forward P/E Ratio: 4.6x
The owner of Dr. Scholl's, Caleres (NYSE: CAL) is a footwear company offering a range of styles.
Why Do We Think CAL Will Underperform?
- Annual sales declines of 3.8% for the past two years show its products and services struggled to connect with the market
- Estimated sales for the next 12 months are flat and imply a softer demand environment
- Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned
At $14.03 per share, Caleres trades at 4.6x forward P/E. If you’re considering CAL for your portfolio, see our FREE research report to learn more.
Universal Logistics (ULH)
Forward P/E Ratio: 9.1x
Founded in 1932, Universal Logistics (NASDAQ: ULH) is a provider of customized transportation and logistics solutions operating throughout the United States and in Mexico, Canada, and Colombia.
Why Are We Out on ULH?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 5.1% annually over the last two years
- Earnings per share have contracted by 22.9% annually over the last two years, a headwind for returns as stock prices often echo long-term EPS performance
- Free cash flow margin dropped by 9.6 percentage points over the last five years, implying the company became more capital intensive as competition picked up
Universal Logistics’s stock price of $28.45 implies a valuation ratio of 9.1x forward P/E. Dive into our free research report to see why there are better opportunities than ULH.
High-Quality Stocks for All Market Conditions
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