Value investing has produced some of the world’s most famous investing billionaires, including Warren Buffett, David Einhorn, and Seth Klarman, who built their fortunes 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.
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 with poor fundamentals and some alternatives you should consider instead.
RingCentral (RNG)
Forward P/S Ratio: 1.3x
Built on its proprietary Message Video Phone (MVP) platform that unifies multiple communication methods, RingCentral (NYSE: RNG) provides AI-driven cloud communications and collaboration solutions that enable businesses to connect through voice, video, messaging, and contact center services.
Why Do We Steer Clear of RNG?
- Offerings struggled to generate meaningful interest as its average billings growth of 3.8% over the last year did not impress
- Estimated sales growth of 4.5% for the next 12 months implies demand will slow from its two-year trend
- Competitive market means the company must spend more on sales and marketing to stand out even if the return on investment is low
RingCentral is trading at $38.96 per share, or 1.3x forward price-to-sales. To fully understand why you should be careful with RNG, check out our full research report (it’s free).
Fortune Brands (FBIN)
Forward P/E Ratio: 14.5x
Targeting a wide customer base of residential and commercial customers, Fortune Brands (NYSE: FBIN) makes plumbing, security, and outdoor living products.
Why Should You Sell FBIN?
- Organic revenue growth fell short of our benchmarks over the past two years and implies it may need to improve its products, pricing, or go-to-market strategy
- Efficiency has decreased over the last five years as its operating margin fell by 9.8 percentage points
- Earnings per share fell by 8.9% annually over the last five years while its revenue grew, showing its incremental sales were much less profitable
At $48.09 per share, Fortune Brands trades at 14.5x forward P/E. Dive into our free research report to see why there are better opportunities than FBIN.
Amneal (AMRX)
Forward P/E Ratio: 13.8x
Founded in 2002 and growing into one of America's largest generic drug producers, Amneal Pharmaceuticals (NASDAQ: AMRX) develops, manufactures, and distributes generic medicines, specialty branded drugs, biosimilars, and injectable products for the U.S. healthcare market.
Why Are We Cautious About AMRX?
- Estimated sales growth of 2.1% for the next 12 months implies demand will slow from its two-year trend
- Expenses have increased as a percentage of revenue over the last five years as its adjusted operating margin fell by 1 percentage points
- Below-average returns on capital indicate management struggled to find compelling investment opportunities
Amneal’s stock price of $13.29 implies a valuation ratio of 13.8x forward P/E. If you’re considering AMRX for your portfolio, see our FREE research report to learn more.
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