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.
This distinction between true value and value traps can challenge even the most skilled investors. Luckily for you, we started StockStory to help you uncover exceptional companies. That said, here are three value stocks with poor fundamentals and some alternatives you should consider instead.
Asana (ASAN)
Forward P/S Ratio: 1.8x
Born from the founders' frustration with the inefficiencies of email-based collaboration at Facebook, Asana (NYSE:ASAN) provides a work management platform that helps organizations track projects, set goals, and manage workflows in a centralized digital workspace.
Why Do We Avoid ASAN?
- Average billings growth of 9.4% over the last year was subpar, suggesting it struggled to push its software and might have to lower prices to stimulate demand
- Competitive market dynamics make it difficult to retain customers, leading to a weak 95.7% net revenue retention rate
- Drawn-out sales process reflects its software’s integration hurdles with enterprise clients, restraining customer growth potential
At $6.42 per share, Asana trades at 1.8x forward price-to-sales. To fully understand why you should be careful with ASAN, check out our full research report (it’s free).
Park-Ohio (PKOH)
Forward P/E Ratio: 9.5x
Based in Cleveland, Park-Ohio (NASDAQ:PKOH) provides supply chain management services, capital equipment, and manufactured components.
Why Do We Steer Clear of PKOH?
- Annual sales declines of 1.8% for the past two years show its products and services struggled to connect with the market during this cycle
- Issuance of new shares over the last two years caused its earnings per share to fall by 6.2% annually, even worse than its revenue declines
- Cash burn makes us question whether it can achieve sustainable long-term growth
Park-Ohio is trading at $29.75 per share, or 9.5x forward P/E. Dive into our free research report to see why there are better opportunities than PKOH.
Kennametal (KMT)
Forward P/E Ratio: 13.7x
Involved in manufacturing hard tips of anti-tank projectiles in World War II, Kennametal (NYSE:KMT) is a provider of industrial materials and tools for various sectors.
Why Is KMT Risky?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 1.1% annually over the last two years
- Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
- Earnings growth underperformed the sector average over the last two years as its EPS grew by just 1.9% annually
Kennametal’s stock price of $38.56 implies a valuation ratio of 13.7x forward P/E. If you’re considering KMT for your portfolio, see our FREE research report to learn more.
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