Value investing has produced some of the world’s most famous investing billionaires, including Warren Buffett, David Einhorn, and Seth Klarman, who built their fortunes by purchasing wonderful businesses at reasonable prices. But these hidden gems are few and far between - many stocks that appear cheap often stay that way because they face structural issues.
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 poor fundamentals and some alternatives you should consider instead.
ZoomInfo (GTM)
Forward P/S Ratio: 1.5x
Operating a platform it calls "RevOS" - short for Revenue Operating System - ZoomInfo (NASDAQ: GTM) provides sales, marketing, and recruiting teams with business intelligence and analytics to identify prospects and deliver targeted outreach.
Why Is GTM Risky?
- Offerings struggled to generate interest as its billings were flat over the last year
- Demand will likely be weak over the next 12 months as Wall Street expects flat revenue
- Free cash flow margin is forecasted to shrink by 4.6 percentage points in the coming year, suggesting the company will consume more capital to keep up with its competitors
ZoomInfo is trading at $5.89 per share, or 1.5x forward price-to-sales. To fully understand why you should be careful with GTM, check out our full research report (it’s free).
Strategic Education (STRA)
Forward P/E Ratio: 11.5x
Formed through the merger of Strayer Education and Capella Education in 2018, Strategic Education (NASDAQ: STRA) is a career-focused higher education provider.
Why Should You Sell STRA?
- Performance surrounding its international students has lagged its peers
- Incremental sales over the last five years were much less profitable as its earnings per share fell by 1.7% annually while its revenue grew
- Free cash flow margin is not anticipated to grow over the next year
Strategic Education’s stock price of $80.35 implies a valuation ratio of 11.5x forward P/E. Read our free research report to see why you should think twice about including STRA in your portfolio.
Sixth Street Specialty Lending (TSLX)
Forward P/E Ratio: 9.2x
Originally launched as TPG Specialty Lending before rebranding in 2020, Sixth Street Specialty Lending (NYSE: TSLX) is a business development company that provides customized financing solutions to middle-market companies across various industries.
Why Do We Think TSLX Will Underperform?
- 1.2% annual revenue growth over the last two years was slower than its financials peers
- Flat earnings per share over the last two years underperformed the sector average
At $18.23 per share, Sixth Street Specialty Lending trades at 9.2x forward P/E. If you’re considering TSLX for your portfolio, see our FREE research report to learn more.
High-Quality Stocks for All Market Conditions
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