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. That said, here are three value stocks climbing an uphill battle and some other investments you should look into instead.
Teradata (TDC)
Forward P/S Ratio: 1.3x
Part of point-of-sale and ATM company NCR from 1991 to 2007, Teradata (NYSE: TDC) offers a software-as-service platform that helps organizations manage and analyze their data across multiple storages.
Why Do We Pass on TDC?
- Offerings couldn’t generate interest over the last year as its billings have averaged 3.4% declines
- Sales are projected to tank by 3.3% over the next 12 months as its demand continues evaporating
- Gross margin of 60.2% is below its competitors, leaving less money to invest in areas like marketing and R&D
At $21.62 per share, Teradata trades at 1.3x forward price-to-sales. Check out our free in-depth research report to learn more about why TDC doesn’t pass our bar.
Builders FirstSource (BLDR)
Forward P/E Ratio: 11.1x
Headquartered in Irving, TX, Builders FirstSource (NYSE: BLDR) is a construction materials manufacturer that offers a variety of lumber and lumber-related building products.
Why Do We Think Twice About BLDR?
- Sales tumbled by 12.1% annually over the last two years, showing market trends are working against its favor during this cycle
- Earnings per share have contracted by 23.2% annually over the last two years, a headwind for returns as stock prices often echo long-term EPS performance
- Waning returns on capital imply its previous profit engines are losing steam
Builders FirstSource is trading at $108.99 per share, or 11.1x forward P/E. Dive into our free research report to see why there are better opportunities than BLDR.
Stanley Black & Decker (SWK)
Forward P/E Ratio: 12.4x
With an iconic “STANLEY” logo which has remained virtually unchanged for over a century, Stanley Black & Decker (NYSE: SWK) is a manufacturer primarily catering to the tool and outdoor equipment industry.
Why Do We Think SWK Will Underperform?
- Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
- Incremental sales over the last five years were much less profitable as its earnings per share fell by 11% annually while its revenue grew
- Free cash flow margin dropped by 8.7 percentage points over the last five years, implying the company became more capital intensive as competition picked up
Stanley Black & Decker’s stock price of $66.89 implies a valuation ratio of 12.4x forward P/E. To fully understand why you should be careful with SWK, check out our full research report (it’s free).
Stocks We Like More
The market surged in 2024 and reached record highs after Donald Trump’s presidential victory in November, but questions about new economic policies are adding much uncertainty for 2025.
While the crowd speculates what might happen next, we’re homing in on the companies that can succeed regardless of the political or macroeconomic environment. Put yourself in the driver’s seat and build a durable portfolio by checking out our Top 5 Strong Momentum Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 176% over the last five years.
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-micro-cap company Tecnoglass (+1,754% five-year return). Find your next big winner with StockStory today for free.
