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.

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 with poor fundamentals and some alternatives you should consider instead.

B&G Foods (BGS)

Forward P/E Ratio: 6.4x

Started as a small grocery store in New York City, B&G Foods (NYSE: BGS) is an American packaged foods company with a diverse portfolio of more than 50 brands.

Why Do We Avoid BGS?

1. Annual sales declines of 3.3% for the past three years show its products struggled to connect with the market
2. Performance over the past three years shows each sale was less profitable as its earnings per share dropped by 30.8% annually, worse than its revenue
3. High net-debt-to-EBITDA ratio of 7× could force the company to raise capital at unfavorable terms if market conditions deteriorate

At $4.51 per share, B&G Foods trades at 6.4x forward P/E. Read our free research report to see why you should think twice about including BGS in your portfolio.

FOX (FOXA)

Forward P/E Ratio: 14.2x

Founded in 1915, Fox (NASDAQ: FOXA) is a diversified media company, operating prominent cable news, television broadcasting, and digital media platforms.

Why Should You Dump FOXA?

1. Large revenue base makes it harder to increase sales quickly, and its annual revenue growth of 3.9% over the last two years was below our standards for the consumer discretionary sector
2. Sales are projected to tank by 4.4% over the next 12 months as demand evaporates

FOX’s stock price of $56.25 implies a valuation ratio of 14.2x forward P/E. To fully understand why you should be careful with FOXA, check out our full research report (it’s free).

Select Medical (SEM)

Forward P/E Ratio: 13x

With a nationwide network spanning 46 states and over 2,700 healthcare facilities, Select Medical (NYSE: SEM) operates critical illness recovery hospitals, rehabilitation hospitals, outpatient rehabilitation clinics, and occupational health centers across the United States.

Why Is SEM Risky?

1. Declining admissions over the past two years indicate demand is soft and that the company may need to revise its strategy
2. Sales are expected to decline once again over the next 12 months as it continues working through a challenging demand environment
3. 13.2 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position

Select Medical is trading at $15.14 per share, or 13x forward P/E. Read our free research report to see why you should think twice about including SEM in your portfolio.

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