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 is one value stock with strong fundamentals and two with little support.
Two Value Stocks to Sell:
American Woodmark (AMWD)
Forward P/E Ratio: 7.9x
Starting as a small millwork shop, American Woodmark (NASDAQ: AMWD) is a cabinet manufacturing company that helps customers from inspiration to installation.
Why Do We Steer Clear of AMWD?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 8.1% annually over the last two years
- Earnings per share have dipped by 1.2% annually over the past five years, which is concerning because stock prices follow EPS over the long term
- Free cash flow margin shrank by 5.7 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
American Woodmark is trading at $60.49 per share, or 7.9x forward price-to-earnings. If you’re considering AMWD for your portfolio, see our FREE research report to learn more.
United Airlines (UAL)
Forward P/E Ratio: 5.6x
Founded in 1926, United Airlines Holdings (NASDAQ: UAL) operates a global airline network, providing passenger and cargo air transportation services across domestic and international routes.
Why Should You Dump UAL?
- Number of revenue passenger miles has disappointed over the past two years, indicating weak demand for its offerings
- Performance over the past five years shows its incremental sales were much less profitable, as its earnings per share fell by 2.6% annually
- Below-average returns on capital indicate management struggled to find compelling investment opportunities
At $71.70 per share, United Airlines trades at 5.6x forward price-to-earnings. Read our free research report to see why you should think twice about including UAL in your portfolio.
One Value Stock to Watch:
Dick's (DKS)
Forward P/E Ratio: 13.1x
Started as a hunting supply store, Dick’s Sporting Goods (NYSE: DKS) is a retailer that sells merchandise for traditional sports as well as for fitness and outdoor activities.
Why Does DKS Stand Out?
- Locations open for at least a year are seeing increased demand as same-store sales have averaged 3.9% growth over the past two years
- Share repurchases over the last five years enabled its annual earnings per share growth of 33.2% to outpace its revenue gains
- ROIC punches in at 23.2%, illustrating management’s expertise in identifying profitable investments
Dick’s stock price of $194.21 implies a valuation ratio of 13.1x forward price-to-earnings. Is now the time to initiate a position? See for yourself in our in-depth 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 Strong Momentum Stocks for this week. 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 Comfort Systems (+751% five-year return). Find your next big winner with StockStory today for free.
