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.
Tyson Foods (TSN)
Forward P/E Ratio: 15x
Started as a simple trucking business, Tyson Foods (NYSE: TSN) is one of the world’s largest producers of chicken, beef, and pork.
Why Do We Pass on TSN?
- Scale is a double-edged sword because it limits the company's growth potential compared to its smaller competitors, as reflected in its below-average annual revenue increases of 1.5% for the last three years
- Commoditized products, bad unit economics, and high competition are reflected in its low gross margin of 7%
- Earnings per share have dipped by 27.6% annually over the past three years, which is concerning because stock prices follow EPS over the long term
At $55.98 per share, Tyson Foods trades at 15x forward P/E. To fully understand why you should be careful with TSN, check out our full research report (it’s free).
REV Group (REVG)
Forward P/E Ratio: 14.9x
Offering the first full-electric North American fire truck, REV (NYSE: REVG) manufactures and sells specialty vehicles.
Why Are We Cautious About REVG?
- Sales were flat over the last five years, indicating it’s failed to expand this cycle
- Competitive supply chain dynamics and steep production costs are reflected in its low gross margin of 11.7%
- Operating margin of 2.5% falls short of the industry average, and the smaller profit dollars make it harder to react to unexpected market developments
REV Group is trading at $37.64 per share, or 14.9x forward P/E. Dive into our free research report to see why there are better opportunities than REVG.
Hewlett Packard Enterprise (HPE)
Forward P/E Ratio: 8.2x
Born from the 2015 split of the iconic Silicon Valley pioneer Hewlett-Packard, Hewlett Packard Enterprise (NYSE: HPE) provides edge-to-cloud technology solutions that help businesses capture, analyze, and act upon their data across hybrid IT environments.
Why Does HPE Fall Short?
- Large revenue base makes it harder to increase sales quickly, and its annual revenue growth of 1.8% over the last five years was below our standards for the business services sector
- Earnings per share fell by 3% annually over the last two years while its revenue grew, partly because it diluted shareholders
- Below-average returns on capital indicate management struggled to find compelling investment opportunities
Hewlett Packard Enterprise’s stock price of $17.80 implies a valuation ratio of 8.2x forward P/E. Check out our free in-depth research report to learn more about why HPE doesn’t pass our bar.
High-Quality Stocks for All Market Conditions
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