3 Value Stocks We Keep Off Our Radar

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.

Forward P/E Ratio: 14.5x

Founded in 1903, Harley-Davidson (NYSE:HOG) is an American motorcycle manufacturer known for its heavyweight motorcycles designed for cruising on highways.

Why Do We Think Twice About HOG?

1. Number of motorcycles sold has disappointed over the past two years, indicating weak demand for its offerings

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

3. High net-debt-to-EBITDA ratio of 8× could force the company to raise capital at unfavorable terms if market conditions deteriorate

Harley-Davidson’s stock price of $22.30 implies a valuation ratio of 14.5x forward P/E. Check out our free in-depth research report to learn more about why HOG doesn’t pass our bar.

Forward P/E Ratio: 11x

With a global footprint spanning three continents and approximately 81,000 beds across 100 facilities, GEO Group (NYSE:GEO) operates secure facilities, processing centers, and reentry services for government agencies in the United States, Australia, and South Africa.

Why Is GEO Risky?

1. Annual revenue growth of 1.1% over the last five years was below our standards for the business services sector

2. Expenses have increased as a percentage of revenue over the last four years as its adjusted operating margin fell by 6.6 percentage points

3. 11.7 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

GEO Group is trading at $14.78 per share, or 11x forward P/E. Read our free research report to see why you should think twice about including GEO in your portfolio, it’s free for active Edge members.

Forward P/E Ratio: 11x

With over 9,000 retail pharmacy locations serving as neighborhood health destinations across America, CVS Health (NYSE:CVS) operates retail pharmacies, provides pharmacy benefit management services, and offers health insurance through its Aetna subsidiary.

Why Are We Wary of CVS?

1. Large revenue base makes it harder to increase sales quickly, and its annual revenue growth of 6.4% over the last two years was below our standards for the healthcare sector

2. Performance over the past five years shows its incremental sales were much less profitable, as its earnings per share fell by 2.9% annually

3. Below-average returns on capital indicate management struggled to find compelling investment opportunities, and its shrinking returns suggest its past profit sources are losing steam