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.
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. That said, here are three value stocks with little support and some other investments you should consider instead.
General Mills (GIS)
Forward P/E Ratio: 13.6x
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 Hesitant About GIS?
- Falling unit sales over the past two years show it’s struggled to move its products and had to rely on price increases
- Projected sales decline of 3.2% for the next 12 months points to an even tougher demand environment ahead
- 3.1 percentage point decline in its free cash flow margin over the last year reflects the company’s increased investments to defend its market position
General Mills’s stock price of $50.58 implies a valuation ratio of 13.6x forward P/E. If you’re considering GIS for your portfolio, see our FREE research report to learn more.
Dave & Buster's (PLAY)
Forward P/E Ratio: 9.4x
Founded by a former game parlor and bar operator, Dave & Buster’s (NASDAQ: PLAY) operates a chain of arcades providing immersive entertainment experiences.
Why Are We Wary of PLAY?
- Disappointing same-store sales over the past two years show customers aren’t responding well to its product selection and in-store experience
- Cash-burning tendencies make us wonder if it can sustainably generate shareholder value
- Unfavorable liquidity position could lead to additional equity financing that dilutes shareholders
At $18.83 per share, Dave & Buster's trades at 9.4x forward P/E. Read our free research report to see why you should think twice about including PLAY in your portfolio.
Amphastar Pharmaceuticals (AMPH)
Forward P/E Ratio: 8.2x
Founded in 1996 and known for its expertise in complex drug formulations, Amphastar Pharmaceuticals (NASDAQ: AMPH) develops and manufactures technically challenging injectable and inhalation medications, including both generic and proprietary pharmaceutical products.
Why Does AMPH Fall Short?
- Smaller revenue base of $722.7 million means it hasn’t achieved the economies of scale that some industry juggernauts enjoy
- Sales are projected to remain flat over the next 12 months as demand decelerates from its two-year trend
Amphastar Pharmaceuticals is trading at $27.20 per share, or 8.2x forward P/E. Check out our free in-depth research report to learn more about why AMPH doesn’t pass our bar.
Stocks We Like More
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