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.
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. That said, here is one value stock offering a compelling risk-reward profile and two with little support.
Two Value Stocks to Sell:
Planet Fitness (PLNT)
Forward P/E Ratio: 12.2x
Founded by two brothers who purchased a struggling gym, Planet Fitness (NYSE:PLNT) is a gym franchise that caters to casual fitness users by providing a friendly and inclusive atmosphere.
Why Is PLNT Risky?
- Disappointing same-store sales over the past two years show customers aren’t responding well to its product selection and in-store experience
- Projected 2.6 percentage point decline in its free cash flow margin next year reflects the company’s plans to increase its investments to defend its market position
- Improving returns on capital suggest management is identifying more profitable investments
Planet Fitness’s stock price of $42.44 implies a valuation ratio of 12.2x forward P/E. Check out our free in-depth research report to learn more about why PLNT doesn’t pass our bar.
Weatherford (WFRD)
Forward P/E Ratio: 13.5x
Operating in roughly 75 countries with over 300 facilities worldwide, Weatherford (NASDAQ:WFRD) provides equipment and services for drilling, completing, and maintaining oil and gas wells.
Why Is WFRD Not Exciting?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 4.1% annually over the last ten years
- High extraction costs and unfavorable asset economics are reflected in its low gross margin of 31.9%
At $79.95 per share, Weatherford trades at 13.5x forward P/E. Dive into our free research report to see why there are better opportunities than WFRD.
One Value Stock to Watch:
LegalZoom (LZ)
Forward EV/EBITDA Ratio: 4.2x
Founded by famous lawyer Robert Shapiro, LegalZoom (NASDAQ:LZ) offers online legal services and documentation assistance for individuals and businesses.
Why Could LZ Be a Winner?
- Subscription Units have increased by an average of 10.7% annually, giving it the potential for margin-accretive growth if it can develop valuable complementary products and features
- Platform’s growing usage and its ability to increase user spending by 17.2% annually showcases its high switching costs
- Healthy EBITDA margin of 23.1% shows it’s a well-run company with efficient processes, and its rise over the last few years was fueled by some leverage on its fixed costs
LegalZoom is trading at $5.78 per share, or 4.2x forward EV/EBITDA. Is now a good time to buy? See for yourself in our full research report, it’s free.
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