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.
Penguin Solutions (PENG)
Forward P/E Ratio: 11.8x
Based in the US, Penguin Solutions (NASDAQ: PENG) is a diversified semiconductor company offering memory, digital, and LED products.
Why Are We Out on PENG?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 9.4% annually over the last two years
- Responsiveness to unforeseen market trends is restricted due to its substandard operating profitability
- Below-average returns on capital indicate management struggled to find compelling investment opportunities, and its falling returns suggest its earlier profit pools are drying up
At $17.95 per share, Penguin Solutions trades at 11.8x forward P/E. Read our free research report to see why you should think twice about including PENG in your portfolio.
DaVita (DVA)
Forward P/E Ratio: 12.1x
With over 2,600 dialysis centers across the United States and a presence in 13 countries, DaVita (NYSE: DVA) operates a network of dialysis centers providing treatment and care for patients with chronic kidney disease and end-stage kidney disease.
Why Does DVA Worry Us?
- Large revenue base makes it harder to increase sales quickly, and its annual revenue growth of 2.5% over the last five years was below our standards for the healthcare sector
- Flat treatments over the past two years indicate demand is soft and that the company may need to revise its strategy
- Estimated sales growth of 4.6% for the next 12 months is soft and implies weaker demand
DaVita is trading at $141.62 per share, or 12.1x forward P/E. If you’re considering DVA for your portfolio, see our FREE research report to learn more.
Ingram Micro (INGM)
Forward P/E Ratio: 6.6x
Operating as the crucial link in the global technology supply chain with a presence in 57 countries, Ingram Micro (NYSE: INGM) is a global technology distributor that connects manufacturers with resellers, providing hardware, software, cloud services, and logistics expertise.
Why Should You Dump INGM?
- Products and services are facing end-market challenges during this cycle, as seen in its flat sales over the last two years
- Earnings per share have dipped by 9.8% annually over the past two years, which is concerning because stock prices follow EPS over the long term
- Poor free cash flow margin of 0.5% for the last five years limits its freedom to invest in growth initiatives, execute share buybacks, or pay dividends
Ingram Micro’s stock price of $19.85 implies a valuation ratio of 6.6x forward P/E. Check out our free in-depth research report to learn more about why INGM doesn’t pass our bar.
High-Quality Stocks for All Market Conditions
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 5 Growth Stocks for this month. This is a curated list of our High Quality stocks that have generated a market-beating return of 183% over the last five years (as of March 31st 2025).
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-micro-cap company Kadant (+351% five-year return). Find your next big winner with StockStory today for free.
