3 Value Stocks in Hot Water

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. Keeping that in mind, here are three value stocks climbing an uphill battle and some other investments you should look into instead.

Five Below (FIVE)

Forward P/E Ratio: 14.7x

Often facilitating a treasure hunt shopping experience, Five Below (NASDAQ:FIVE) is an American discount retailer that sells a variety of products from mobile phone cases to candy to sports equipment for largely $5 or less.

Why Are We Hesitant About FIVE?

1. Lagging same-store sales over the past two years suggest it might have to change its pricing and marketing strategy to stimulate demand
2. Smaller revenue base of $3.88 billion means it hasn’t achieved the economies of scale that some industry juggernauts enjoy
3. Underwhelming 10.4% return on capital reflects management’s difficulties in finding profitable growth opportunities, and its falling returns suggest its earlier profit pools are drying up

Five Below is trading at $74.93 per share, or 14.7x forward price-to-earnings. Dive into our free research report to see why there are better opportunities than FIVE.

OneWater (ONEW)

Forward P/E Ratio: 9x

A public company since early 2020, OneWater Marine (NASDAQ:ONEW) sells boats, yachts, and other marine products.

Why Does ONEW Give Us Pause?

1. Poor same-store sales performance over the past two years indicates it’s having trouble bringing new shoppers into its brick-and-mortar locations
2. Earnings per share have dipped by 35.9% annually over the past four years, which is concerning because stock prices follow EPS over the long term
3. High net-debt-to-EBITDA ratio of 7× could force the company to raise capital at unfavorable terms if market conditions deteriorate

At $16.18 per share, OneWater trades at 9x forward price-to-earnings. If you’re considering ONEW for your portfolio, see our FREE research report to learn more.

Ford (F)

Forward P/E Ratio: 6.1x

Established to make automobiles accessible to a broader segment of the population, Ford (NYSE:F) designs, manufactures, and sells a variety of automobiles, trucks, and electric vehicles.

Why Is F Risky?

1. Underwhelming vehicles sold over the past two years suggest it might have to lower prices to accelerate growth
2. Free cash flow margin shrank by 10.9 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
3. 7× net-debt-to-EBITDA ratio makes lenders less willing to extend additional capital, potentially necessitating dilutive equity offerings

Ford’s stock price of $10 implies a valuation ratio of 6.1x forward price-to-earnings. Read our free research report to see why you should think twice about including F in your portfolio.

Stocks We Like 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 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.