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3 Value Stocks in Hot Water

3 Value Stocks in Hot Water

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. Keeping that in mind, here are three value stocks with little support and some other investments you should consider instead.

American Eagle (AEO)

Forward P/E Ratio: 6.6x

With a heavy focus on denim, American Eagle Outfitters (NYSE:AEO) is a specialty retailer offering an assortment of apparel and accessories to young adults.

Why Do We Think Twice About AEO?

  1. 5% annual revenue growth over the last five years was slower than its consumer retail peers

  2. Capital intensity has ramped up over the last year as its free cash flow margin decreased by 7.9 percentage points

  3. Underwhelming 4.2% return on capital reflects management’s difficulties in finding profitable growth opportunities

American Eagle is trading at $12.33 per share, or 6.6x forward price-to-earnings. If you’re considering AEO for your portfolio, see our FREE research report to learn more .

Boyd Gaming (BYD)

Forward P/E Ratio: 11.2x

Run by the Boyd family, Boyd Gaming (NYSE:BYD) is a diversified operator of gaming entertainment properties across the United States, offering casino games, hotel accommodations, and dining.

Why Is BYD Not Exciting?

  1. 3.4% annual revenue growth over the last five years was slower than its consumer discretionary peers

  2. Sales are projected to remain flat over the next 12 months as demand decelerates from its two-year trend

  3. Capital intensity will likely increase as its free cash flow margin is anticipated to drop by 3.4 percentage points over the next year

At $74.85 per share, Boyd Gaming trades at 11.2x forward price-to-earnings. Check out our free in-depth research report to learn more about why BYD doesn’t pass our bar .

Laureate Education (LAUR)

Forward P/E Ratio: 14.3x

Founded in 1998 by Douglas L. Becker and based in Miami, Laureate Education (NASDAQ:LAUR) is a global network of higher education institutions.

Why Does LAUR Worry Us?

  1. Sluggish trends in its enrolled students suggest customers aren’t adopting its solutions as quickly as the company hoped

  2. Sales are projected to remain flat over the next 12 months as demand decelerates from its two-year trend

  3. ROIC of 7% reflects management’s challenges in identifying attractive investment opportunities

Laureate Education’s stock price of $19.76 implies a valuation ratio of 14.3x forward price-to-earnings. To fully understand why you should be careful with LAUR, check out our full research report (it’s free) .

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 9 Market-Beating Stocks . 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 Comfort Systems (+751% five-year return). Find your next big winner with StockStory today for free .