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.
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. Keeping that in mind, here are three value stocks climbing an uphill battle and some other investments you should look into instead.
Genuine Parts (GPC)
Forward P/E Ratio: 14.4x
Largely targeting the professional customer, Genuine Parts (NYSE:GPC) sells auto and industrial parts such as batteries, belts, bearings, and machine fluids.
Why Are We Wary of GPC?
- Lagging same-store sales over the past two years suggest it might have to change its pricing and marketing strategy to stimulate demand
- Efficiency has decreased over the last year as its operating margin fell by 2.3 percentage points
- Free cash flow margin dropped by 1.1 percentage points over the last year, implying the company became more capital intensive as competition picked up
At $117.89 per share, Genuine Parts trades at 14.4x forward price-to-earnings. Check out our free in-depth research report to learn more about why GPC doesn’t pass our bar.
Xponential Fitness (XPOF)
Forward P/E Ratio: 4.8x
Owner of CycleBar, Rumble, and Club Pilates, Xponential Fitness (NYSE:XPOF) is a boutique fitness brand offering diverse and specialized exercise experiences.
Why Are We Hesitant About XPOF?
- Lackluster 14.3% annual revenue growth over the last two years indicates the company is losing ground to competitors
- Suboptimal cost structure is highlighted by its history of operating losses
- Negative returns on capital show that some of its growth strategies have backfired
Xponential Fitness is trading at $8.16 per share, or 4.8x forward price-to-earnings. Dive into our free research report to see why there are better opportunities than XPOF.
Covenant Logistics (CVLG)
Forward P/E Ratio: 9.5x
Started with 25 trucks and 50 trailers, Covenant Logistics (NASDAQ:CVLG) is a provider of expedited long haul freight services, offering a range of logistics solutions.
Why Should You Sell CVLG?
- Sales tumbled by 3.6% annually over the last two years, showing market trends are working against its favor during this cycle
- Earnings per share have dipped by 17.8% annually over the past two years, which is concerning because stock prices follow EPS over the long term
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 22.2 percentage points
Covenant Logistics’s stock price of $21.55 implies a valuation ratio of 9.5x forward price-to-earnings. If you’re considering CVLG for your portfolio, see our FREE research report to learn more.
Stocks We Like More
The elections are now behind us. With rates dropping and inflation cooling, many analysts expect a breakout market - and we’re zeroing in on the stocks that could benefit immensely.
Take advantage of the rebound by checking out 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 175% over the last five years.
Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like United Rentals (+322% five-year return). Find your next big winner with StockStory today for free.