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 poor fundamentals and some alternatives you should consider instead.
Designer Brands (DBI)
Forward P/E Ratio: 7x
Founded in 1969 as a shoe importer and distributor, Designer Brands (NYSE: DBI) is an American discount retailer focused on footwear and accessories.
Why Do We Avoid DBI?
- Lagging same-store sales over the past two years suggest it might have to change its pricing and marketing strategy to stimulate demand
- Below-average returns on capital indicate management struggled to find compelling investment opportunities
- High net-debt-to-EBITDA ratio of 9× increases the risk of forced asset sales or dilutive financing if operational performance weakens
Designer Brands’s stock price of $3.64 implies a valuation ratio of 7x forward P/E. Read our free research report to see why you should think twice about including DBI in your portfolio.
Target (TGT)
Forward P/E Ratio: 11.2x
With a higher focus on style and aesthetics compared to other large general merchandise retailers, Target (NYSE: TGT) serves the suburban consumer who is looking for a wide range of products under one roof.
Why Does TGT Give Us Pause?
- Disappointing same-store sales over the past two years show customers aren’t responding well to its product selection and store experience
- Demand is forecasted to shrink as its estimated sales for the next 12 months are flat
- Gross margin of 28% is below its competitors, leaving less money for marketing and promotions
At $99.02 per share, Target trades at 11.2x forward P/E. If you’re considering TGT for your portfolio, see our FREE research report to learn more.
Ball (BALL)
Forward P/E Ratio: 14.6x
Started with a $200 loan in 1880, Ball (NYSE: BLL) manufactures aluminum packaging for beverages, personal care, and household products as well as aerospace systems and other technologies.
Why Are We Out on BALL?
- Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
- Poor free cash flow margin of -0.6% for the last five years limits its freedom to invest in growth initiatives, execute share buybacks, or pay dividends
- Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
Ball is trading at $53.50 per share, or 14.6x forward P/E. Check out our free in-depth research report to learn more about why BALL doesn’t pass our bar.
High-Quality Stocks for All Market Conditions
Market indices reached historic highs following Donald Trump’s presidential victory in November 2024, but the outlook for 2025 is clouded by new trade policies that could impact business confidence and growth.
While this has caused many investors to adopt a "fearful" wait-and-see approach, we’re leaning into our best ideas that can grow regardless of the political or macroeconomic climate. Take advantage of Mr. Market by checking out our Top 5 Growth Stocks for this month. This is a curated list of our High Quality stocks that have generated a market-beating return of 183% over the last five years (as of March 31st 2025).
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-micro-cap company Tecnoglass (+1,754% five-year return). Find your next big winner with StockStory today for free.
