The low valuation multiples for value stocks provide a margin of safety that growth stocks rarely offer. However, the challenge lies in determining whether these cheap assets are genuinely undervalued or simply on sale due to their potentially deteriorating business models.
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 is one value stock with strong fundamentals and two with little support.
Two Value Stocks to Sell:
Yext (YEXT)
Forward P/S Ratio: 2.5x
Built to solve the problem of inconsistent business information scattered across the internet, Yext (NYSE:YEXT) provides a digital presence platform that helps businesses manage their information across websites, maps, apps, and search engines.
Why Does YEXT Give Us Pause?
- Underwhelming ARR growth of 8.8% over the last year suggests the company faced challenges in acquiring and retaining long-term customers
- Estimated sales growth of 4.7% for the next 12 months is soft and implies weaker demand
- Customer acquisition costs take a while to recoup, making it difficult to justify sales and marketing investments that could increase revenue
At $8.59 per share, Yext trades at 2.5x forward price-to-sales. To fully understand why you should be careful with YEXT, check out our full research report (it’s free).
Genpact (G)
Forward P/E Ratio: 12.2x
Originally spun off from General Electric in 2005 to provide business process services, Genpact (NYSE:G) is a global professional services firm that helps businesses transform their operations through digital technology, AI, and data analytics solutions.
Why Do We Think Twice About G?
- Anticipated sales growth of 4.8% for the next year implies demand will be shaky
- Free cash flow margin dropped by 3.9 percentage points over the last five years, implying the company became more capital intensive as competition picked up
Genpact’s stock price of $44.04 implies a valuation ratio of 12.2x forward P/E. Dive into our free research report to see why there are better opportunities than G.
One Value Stock to Buy:
Cal-Maine (CALM)
Forward P/E Ratio: 8.1x
Known for brands such as Egg-Land’s Best and Land O’ Lakes, Cal-Maine (NASDAQ:CALM) produces, packages, and distributes eggs.
Why Should You Buy CALM?
- Impressive 33.9% annual revenue growth over the last three years indicates it’s winning market share
- Additional sales over the last three years increased its profitability as the 110% annual growth in its earnings per share outpaced its revenue
- Strong free cash flow margin of 20.8% enables it to reinvest or return capital consistently, and its recently improved profitability means it has even more resources to invest or distribute
Cal-Maine is trading at $113.50 per share, or 8.1x forward P/E. Is now a good time to buy? See for yourself in our comprehensive research report, it’s free.
High-Quality Stocks for All Market Conditions
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