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. That said, here are three value stocks climbing an uphill battle and some other investments you should look into instead.
Sally Beauty (SBH)
Forward P/E Ratio: 4.6x
Catering to both everyday consumers as well as salon professionals, Sally Beauty (NYSE:SBH) is a retailer that sells salon-quality beauty products such as makeup and haircare products.
Why Is SBH Risky?
- Recent store closures and weak same-store sales point to soft demand and an operational restructuring
- Disappointing same-store sales over the past two years show customers aren’t responding well to its product selection and store experience
- Revenue base of $3.72 billion puts it at a disadvantage compared to larger competitors exhibiting economies of scale
Sally Beauty’s stock price of $8.85 implies a valuation ratio of 4.6x forward price-to-earnings. To fully understand why you should be careful with SBH, check out our full research report (it’s free).
General Mills (GIS)
Forward P/E Ratio: 13.3x
Best known for its portfolio of powerhouse breakfast cereal brands, General Mills (NYSE:GIS) is a packaged foods company that has also made a mark in cereals, baking products, and snacks.
Why Are We Wary of GIS?
- Scale is a double-edged sword because it limits the company's growth potential compared to its smaller competitors, as reflected in its below-average annual revenue increases of 2.3% for the last three years
- Declining unit sales over the past two years indicate demand is soft and that the company may need to revise its product strategy
- Estimated sales decline of 2.4% for the next 12 months implies a challenging demand environment
General Mills is trading at $61.14 per share, or 13.3x forward price-to-earnings. Read our free research report to see why you should think twice about including GIS in your portfolio.
FOX (FOXA)
Forward P/E Ratio: 14.6x
Founded in 1915, Fox (NASDAQ:FOXA) is a diversified media company, operating prominent cable news, television broadcasting, and digital media platforms.
Why Does FOXA Give Us Pause?
- Sizable revenue base leads to growth challenges as its 3.1% annual revenue increases over the last two years fell short of other consumer discretionary companies
- Projected sales growth of 4.2% for the next 12 months suggests sluggish demand
At $56.17 per share, FOX trades at 14.6x forward price-to-earnings. If you’re considering FOXA for your portfolio, see our FREE research report to learn more.
Stocks We Like More
The elections are now behind us. With rates dropping and inflation cooling, many analysts expect a breakout market - and we’re zeroing in on the stocks that could benefit immensely.
Take advantage of the rebound 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 Axon (+711% five-year return). Find your next big winner with StockStory today for free.