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. That said, here are three value stocks with little support and some other investments you should consider instead.
Crown Holdings (CCK)
Forward P/E Ratio: 14.2x
Formerly Crown Cork & Seal, Crown Holdings (NYSE: CCK) produces packaging products for consumer marketing companies, including food, beverage, household, and industrial products.
Why Do We Pass on CCK?
- Weak constant currency growth over the past two years indicates challenges in maintaining its market share
- Projected sales growth of 2% for the next 12 months suggests sluggish demand
- Gross margin of 20.3% is below its competitors, leaving less money to invest in areas like marketing and R&D
Crown Holdings is trading at $98.51 per share, or 14.2x forward P/E. Check out our free in-depth research report to learn more about why CCK doesn’t pass our bar.
Evolent Health (EVH)
Forward P/E Ratio: 13.3x
Founded in 2011 to transform how healthcare is delivered to patients with complex needs, Evolent Health (NYSE: EVH) provides specialty care management services and technology solutions that help health plans and providers deliver better care for patients with complex conditions.
Why Are We Hesitant About EVH?
- Projected sales decline of 10.2% for the next 12 months points to a tough demand environment ahead
- Low free cash flow margin of 0.6% for the last five years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders
- Push for growth has led to negative returns on capital, signaling value destruction
Evolent Health’s stock price of $7.38 implies a valuation ratio of 13.3x forward P/E. If you’re considering EVH for your portfolio, see our FREE research report to learn more.
Maximus (MMS)
Forward P/E Ratio: 11.2x
With nearly 50 years of experience translating public policy into operational programs that serve millions of citizens, Maximus (NYSE: MMS) provides operational services, clinical assessments, and technology solutions to government agencies in the U.S. and internationally.
Why Does MMS Fall Short?
- Sales are projected to remain flat over the next 12 months as demand decelerates from its two-year trend
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 5.9 percentage points
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
At $72.10 per share, Maximus trades at 11.2x forward P/E. Dive into our free research report to see why there are better opportunities than MMS.
Stocks We Like More
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