Value investing has created more billionaires than any other strategy, like Warren Buffett, who built his fortune 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.
Separating the winners from the value traps is a tough challenge, and that’s where StockStory comes in. Our job is to find you high-quality companies that will stand the test of time. Keeping that in mind, here is one value stock offering a compelling risk-reward profile and two with little support.
Forward P/E Ratio: 12.7x
Whether it be packaged crackers, broths, or beverages, Treehouse Foods (NYSE:THS) produces a wide range of private-label foods for grocery and food service customers.
Why Should You Sell THS?
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Falling unit sales over the past two years indicate demand is soft and that the company may need to revise its product strategy
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Costs have risen faster than its revenue over the last year, causing its operating margin to decline by 6.4 percentage points
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Below-average returns on capital indicate management struggled to find compelling investment opportunities, and its decreasing returns suggest its historical profit centers are aging
At $23.50 per share, TreeHouse Foods trades at 12.7x forward P/E. Check out our free in-depth research report to learn more about why THS doesn’t pass our bar.
Forward P/E Ratio: 7.3x
With its iconic blimp floating above major sporting events since 1925, Goodyear (NYSE:GT) is one of the world’s largest tire manufacturers, producing and selling tires for automobiles, trucks, aircraft, and other vehicles, along with related services.
Why Do We Pass on GT?
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Declining unit sales over the past two years imply it may need to invest in improvements to get back on track
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Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 5.2 percentage points
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ROIC of 4.9% reflects management’s challenges in identifying attractive investment opportunities, and its shrinking returns suggest its past profit sources are losing steam
Goodyear’s stock price of $8.90 implies a valuation ratio of 7.3x forward P/E. To fully understand why you should be careful with GT, check out our full research report (it’s free for active Edge members).
Forward P/E Ratio: 10.4x
Originally spun off from eBay in 2015 after being acquired by the auction giant in 2002, PayPal (NASDAQ:PYPL) operates a global digital payments platform that enables consumers and merchants to send, receive, and process payments online and in person.