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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. That said, here are three value stocks with poor fundamentals and some alternatives you should consider instead.

Quanex (NX)

Forward P/E Ratio: 6.4x

Starting in the seamless tube industry, Quanex (NYSE:NX) manufactures building products like window, door, kitchen, and bath cabinet components.

Why Are We Cautious About NX?

1. Efficiency has decreased over the last five years as its operating margin fell by 4.6 percentage points

2. Incremental sales over the last two years were much less profitable as its earnings per share fell by 6.9% annually while its revenue grew

3. 6.7 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

Quanex’s stock price of $17.24 implies a valuation ratio of 6.4x forward P/E. Check out our free in-depth research report to learn more about why NX doesn’t pass our bar.

Vontier (VNT)

Forward P/E Ratio: 10.8x

A spin-off of a spin-off, Vontier (NYSE:VNT) provides electronic products and systems to the transportation, automotive, and manufacturing sectors.

Why Do We Pass on VNT?

1. Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth

2. 14.8 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

3. Diminishing returns on capital suggest its earlier profit pools are drying up

At $34.15 per share, Vontier trades at 10.8x forward P/E. Dive into our free research report to see why there are better opportunities than VNT.

AT&T (T)

Forward P/E Ratio: 13.5x

Founded by Alexander Graham Bell, AT&T (NYSE:T) is a multinational telecomm conglomerate providing a range of communications and internet services.

Why Should You Dump T?

1. Sales tumbled by 7.3% annually over the last five years, showing consumer trends are working against its favor

2. Sales were less profitable over the last five years as its earnings per share fell by 10.9% annually, worse than its revenue declines

3. Underwhelming 3.3% return on capital reflects management’s difficulties in finding profitable growth opportunities