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.
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. That said, here is one value stock trading at a big discount to its intrinsic value and two with little support.
Two Value Stocks to Sell:
Children's Place (PLCE)
Forward P/E Ratio: 8x
Offering sizes up to young teens, The Children’s Place (NASDAQ:PLCE) is a specialty retailer that sells its own brands of kid’s apparel and accessories.
Why Are We Out on PLCE?
- Disappointing same-store sales over the past two years show customers aren’t responding well to its product selection and store experience
- Sales were less profitable over the last four years as its earnings per share fell by 37% annually, worse than its revenue declines
- High net-debt-to-EBITDA ratio of 78× could force the company to raise capital at unfavorable terms if market conditions deteriorate
Children's Place’s stock price of $8.50 implies a valuation ratio of 8x forward price-to-earnings. Dive into our free research report to see why there are better opportunities than PLCE.
Tennant (TNC)
Forward P/E Ratio: 13.8x
As the world’s largest manufacturer of autonomous mobile robots, Tennant (NYSE:TNC) designs, manufactures, and sells cleaning products to various sectors.
Why Are We Cautious About TNC?
- Sales trends were unexciting over the last five years as its 2.5% annual growth was below the typical industrials company
- Estimated sales growth of 3.1% for the next 12 months implies demand will slow from its two-year trend
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 5.1 percentage points
At $87.46 per share, Tennant trades at 13.8x forward price-to-earnings. If you’re considering TNC for your portfolio, see our FREE research report to learn more.
One Value Stock to Watch:
Thermon (THR)
Forward P/E Ratio: 14.9x
Creating the first packaged tracing systems, Thermon (NYSE:THR) is a leading provider of engineered industrial process heating solutions for process industries.
Why Are We Positive On THR?
- Offerings are difficult to replicate at scale and lead to a top-tier gross margin of 42.3%
- Operating profits and efficiency rose over the last five years as it benefited from some fixed cost leverage
- Free cash flow margin expanded by 3.2 percentage points over the last five years, providing additional flexibility for investments and share buybacks/dividends
Thermon is trading at $29.08 per share, or 14.9x forward price-to-earnings. Is now the right time to buy? Find out in our full research report, it’s free.
Stocks We Like Even More
With rates dropping, inflation stabilizing, and the elections in the rearview mirror, all signs point to the start of a new bull run - and we’re laser-focused on finding the best stocks for this upcoming cycle.
Put yourself in the driver’s seat 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 175% over the last five years.
Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like United Rentals (+322% five-year return). Find your next big winner with StockStory today for free.