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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.
Identifying genuine bargains from value traps is something many investors struggle with, which is why we started StockStory - to help you find the best companies. That said, here are three value stocks climbing an uphill battle and some other investments you should look into instead.
Qorvo (QRVO)
Forward P/E Ratio: 14.1x
Formed by the merger of TriQuint and RF Micro Devices, Qorvo (NASDAQ: QRVO) is a designer and manufacturer of RF chips used in almost all smartphones globally, along with a variety of chips used in networking equipment and infrastructure.
Why Are We Out on QRVO?
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Annual revenue growth of 2.8% over the last five years was below our standards for the semiconductor sector
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Efficiency has decreased over the last five years as its operating margin fell by 20 percentage points
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14.7 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position
Qorvo is trading at $78.40 per share, or 14.1x forward P/E. Check out our free in-depth research report to learn more about why QRVO doesn’t pass our bar.
J. M. Smucker (SJM)
Forward P/E Ratio: 11.1x
Best known for its fruit jams and spreads, J.M Smucker (NYSE:SJM) is a packaged foods company whose products span from peanut butter and coffee to pet food.
Why Does SJM Worry Us?
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Muted 3.7% annual revenue growth over the last three years shows its demand lagged behind its consumer staples peers
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Sales are projected to remain flat over the next 12 months as demand decelerates from its three-year trend
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Underwhelming 4.1% return on capital reflects management’s difficulties in finding profitable growth opportunities, and its falling returns suggest its earlier profit pools are drying up
J. M. Smucker’s stock price of $112.79 implies a valuation ratio of 11.1x forward P/E. To fully understand why you should be careful with SJM, check out our full research report (it’s free).
Pediatrix Medical Group (MD)
Forward P/E Ratio: 9.6x
With a network of approximately 2,620 affiliated physicians caring for some of the most vulnerable patients, Pediatrix Medical Group (NYSE:MD) provides specialized physician services focused on neonatal, maternal-fetal, pediatric cardiology and other pediatric subspecialty care across 37 states.