Value stocks typically trade at discounts to the broader market, offering patient investors the opportunity to buy businesses when they’re out of favor. The key risk, however, is that these stocks are usually cheap for a reason – five cents for a piece of fruit may seem like a great deal until you find out it’s rotten.
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 are three value stocks with poor fundamentals and some alternatives you should consider instead.
AerSale (ASLE)
Forward P/E Ratio: 14.2x
Providing a one-stop shop that integrates multiple services and product offerings, AerSale (NASDAQ: ASLE) delivers full-service support to mid-life commercial aircraft.
Why Do We Steer Clear of ASLE?
- 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
- Negative free cash flow raises questions about the return timeline for its investments
- Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
AerSale is trading at $6.75 per share, or 14.2x forward price-to-earnings. If you’re considering ASLE for your portfolio, see our FREE research report to learn more.
Laureate Education (LAUR)
Forward P/E Ratio: 14.1x
Founded in 1998 by Douglas L. Becker and based in Miami, Laureate Education (NASDAQ: LAUR) is a global network of higher education institutions.
Why Does LAUR Give Us Pause?
- Demand for its offerings was relatively low as its number of enrolled students has underwhelmed
- Sales are projected to remain flat over the next 12 months as demand decelerates from its two-year trend
- Low returns on capital reflect management’s struggle to allocate funds effectively
Laureate Education’s stock price of $20.40 implies a valuation ratio of 14.1x forward price-to-earnings. To fully understand why you should be careful with LAUR, check out our full research report (it’s free).
Richardson Electronics (RELL)
Forward P/E Ratio: 12.6x
Founded in 1947, Richardson Electronics (NASDAQ: RELL) is a distributor of power grid and microwave tubes as well as consumables related to those products.
Why Do We Think RELL Will Underperform?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 12.3% annually over the last two years
- Earnings per share have contracted by 74.7% annually over the last two years, a headwind for returns as stock prices often echo long-term EPS performance
- Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of -0.4% for the last five years
At $8.84 per share, Richardson Electronics trades at 12.6x forward price-to-earnings. Dive into our free research report to see why there are better opportunities than RELL.
Stocks We Like More
Donald Trump’s victory in the 2024 U.S. Presidential Election sent major indices to all-time highs, but stocks have retraced as investors debate the health of the economy and the potential impact of tariffs.
While this leaves much uncertainty around 2025, a few companies are poised for long-term gains regardless of the political or macroeconomic climate, like our Top 6 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 United Rentals (+322% five-year return). Find your next big winner with StockStory today for free.
