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.
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. That said, here are three value stocks with little support and some other investments you should consider instead.
Mattel (MAT)
Forward P/E Ratio: 10.9x
Known for the creation of iconic toys such as Barbie and Hotwheels, Mattel (NASDAQ: MAT) is a global children's entertainment company specializing in the design and production of consumer products.
Why Are We Wary of MAT?
- Sales were flat over the last two years, indicating it’s failed to expand its business
- Demand will likely be soft over the next 12 months as Wall Street’s estimates imply tepid growth of 6.5%
- Diminishing returns on capital suggest its earlier profit pools are drying up
At $19.15 per share, Mattel trades at 10.9x forward P/E. Read our free research report to see why you should think twice about including MAT in your portfolio.
AdaptHealth (AHCO)
Forward P/E Ratio: 10.9x
With a network of approximately 680 locations serving patients across all 50 states, AdaptHealth (NASDAQ: AHCO) provides home medical equipment, supplies, and related services to patients with chronic conditions like sleep apnea, diabetes, and respiratory disorders.
Why Are We Cautious About AHCO?
- Annual revenue growth of 2.1% over the last two years was below our standards for the healthcare sector
- Issuance of new shares over the last five years caused its earnings per share to fall by 1.3% annually while its revenue grew
- ROIC of 1.3% reflects management’s challenges in identifying attractive investment opportunities, and its decreasing returns suggest its historical profit centers are aging
AdaptHealth is trading at $9.32 per share, or 10.9x forward P/E. Dive into our free research report to see why there are better opportunities than AHCO.
T. Rowe Price (TROW)
Forward P/E Ratio: 10x
Founded in 1937 by Thomas Rowe Price Jr., who pioneered the growth stock investing approach, T. Rowe Price (NASDAQ: TROW) is an investment management firm that offers mutual funds, advisory services, and retirement planning solutions to individuals and institutions.
Why Is TROW Not Exciting?
- Sales trends were unexciting over the last five years as its 4% annual growth was below the typical financials company
- Incremental sales over the last five years were less profitable as its 1.5% annual earnings per share growth lagged its revenue gains
T. Rowe Price’s stock price of $103.01 implies a valuation ratio of 10x forward P/E. To fully understand why you should be careful with TROW, check out our full research report (it’s free for active Edge members).
Stocks We Like More
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