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.
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 little support and some other investments you should consider instead.
Norwegian Cruise Line (NCLH)
Forward P/E Ratio: 11.3x
With amenities like a full go-kart race track built into its ships, Norwegian Cruise Line (NYSE: NCLH) is a premier global cruise company.
Why Do We Think Twice About NCLH?
- Sluggish trends in its passenger cruise days suggest customers aren’t adopting its solutions as quickly as the company hoped
- Cash-burning tendencies make us wonder if it can sustainably generate shareholder value
- Short cash runway increases the probability of a capital raise that dilutes existing shareholders
At $25.46 per share, Norwegian Cruise Line trades at 11.3x forward P/E. Read our free research report to see why you should think twice about including NCLH in your portfolio.
LGI Homes (LGIH)
Forward P/E Ratio: 8.8x
Based in Texas, LGI Homes (NASDAQ: LGIH) is a homebuilding company specializing in constructing affordable, entry-level single-family homes in desirable communities across the United States.
Why Is LGIH Risky?
- Demand cratered as it couldn’t win new orders over the past two years, leading to an average 10.4% decline in its backlog
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
- Limited cash reserves may force the company to seek unfavorable financing terms that could dilute shareholders
LGI Homes’s stock price of $56.51 implies a valuation ratio of 8.8x forward P/E. Check out our free in-depth research report to learn more about why LGIH doesn’t pass our bar.
Korn Ferry (KFY)
Forward P/E Ratio: 14x
With clients including 97% of the S&P 100 and operations in 103 offices across 51 countries, Korn Ferry (NYSE: KFY) is a global consulting firm that helps organizations design optimal structures, recruit talent, develop leaders, and create effective compensation strategies.
Why Does KFY Worry Us?
- Annual sales declines of 1.3% for the past two years show its products and services struggled to connect with the market during this cycle
- Estimated sales growth of 2.7% for the next 12 months is soft and implies weaker demand
- Diminishing returns on capital suggest its earlier profit pools are drying up
Korn Ferry is trading at $72.40 per share, or 14x forward P/E. Dive into our free research report to see why there are better opportunities than KFY.
High-Quality Stocks for All Market Conditions
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