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 climbing an uphill battle and some other investments you should look into instead.
Forward P/E Ratio: 10.9x
Run by the Boyd family, Boyd Gaming (NYSE:BYD) is a diversified operator of gaming entertainment properties across the United States, offering casino games, hotel accommodations, and dining.
Why Do We Steer Clear of BYD?
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Sales trends were unexciting over the last five years as its 11.4% annual growth was below the typical consumer discretionary company
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Poor free cash flow margin of 11.9% for the last two years limits its freedom to invest in growth initiatives, execute share buybacks, or pay dividends
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Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned
At $82.55 per share, Boyd Gaming trades at 10.9x forward P/E. To fully understand why you should be careful with BYD, check out our full research report (it’s free for active Edge members).
Forward P/E Ratio: 11.1x
Gibraltar (NASDAQ:ROCK) makes renewable energy, agriculture technology and infrastructure products. Its mission statement is to make everyday living more sustainable.
Why Are We Hesitant About ROCK?
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Products and services are facing significant end-market challenges during this cycle as sales have declined by 7.4% annually over the last two years
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Demand will likely be soft over the next 12 months as Wall Street’s estimates imply tepid growth of 4%
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Earnings per share lagged its peers over the last two years as they only grew by 3.1% annually
Gibraltar is trading at $50.31 per share, or 11.1x forward P/E. Dive into our free research report to see why there are better opportunities than ROCK.
Forward P/E Ratio: 9.5x
With over five decades of experience in surgical innovation since its founding in 1970, CONMED (NYSE:CNMD) develops and manufactures medical devices and equipment for surgical procedures, specializing in orthopedic and general surgery products.
Why Does CNMD Fall Short?
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7.4% annual revenue growth over the last two years was slower than its healthcare peers
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Modest revenue base of $1.35 billion gives it less fixed cost leverage and fewer distribution channels than larger companies
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Low returns on capital reflect management’s struggle to allocate funds effectively