Value investing has created more billionaires than any other strategy, like Warren Buffett, who built his fortune 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.
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. Keeping that in mind, here are three value stocks with poor fundamentals and some alternatives you should consider instead.
GoodRx (GDRX)
Forward P/E Ratio: 7.3x
Started in 2011 to tackle the problem of high prescription drug costs in America, GoodRx (NASDAQ: GDRX) operates a digital platform that helps consumers find lower prices on prescription medications through price comparison tools and discount codes.
Why Should You Sell GDRX?
- Underwhelming customer growth over the past two years shows the company faced challenges in winning new contracts
- Subscale operations are evident in its revenue base of $800.7 million, meaning it has fewer distribution channels than its larger rivals
- Push for growth has led to negative returns on capital, signaling value destruction
GoodRx’s stock price of $3.14 implies a valuation ratio of 7.3x forward P/E. Dive into our free research report to see why there are better opportunities than GDRX.
Amneal (AMRX)
Forward P/E Ratio: 13.4x
Founded in 2002 and growing into one of America's largest generic drug producers, Amneal Pharmaceuticals (NASDAQ: AMRX) develops, manufactures, and distributes generic medicines, specialty branded drugs, biosimilars, and injectable products for the U.S. healthcare market.
Why Do We Think Twice About AMRX?
- Free cash flow margin dropped by 1.9 percentage points over the last five years, implying the company became more capital intensive as competition picked up
- Underwhelming 4.1% return on capital reflects management’s difficulties in finding profitable growth opportunities
Amneal is trading at $11.59 per share, or 13.4x forward P/E. Check out our free in-depth research report to learn more about why AMRX doesn’t pass our bar.
Franklin Resources (BEN)
Forward P/E Ratio: 8.9x
Operating under the widely recognized Franklin Templeton brand since 1947, Franklin Resources (NYSE: BEN) is a global investment management organization that offers financial services and solutions to individuals, institutions, and wealth advisors worldwide.
Why Do We Pass on BEN?
- Earnings per share fell by 3.3% annually over the last five years while its revenue grew, showing its incremental sales were much less profitable
- ROE of 8.5% reflects management’s challenges in identifying attractive investment opportunities
At $22.46 per share, Franklin Resources trades at 8.9x forward P/E. If you’re considering BEN for your portfolio, see our FREE research report to learn more.
Stocks We Like More
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