3 Value Stocks in the Doghouse

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.

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 are three value stocks with poor fundamentals and some alternatives you should consider instead.

G-III (GIII)

Forward P/E Ratio: 6.2x

Founded as a small leather goods business, G-III (NASDAQ:GIII) is a fashion and apparel conglomerate with a diverse portfolio of brands.

Why Do We Avoid GIII?

1. Flat sales over the last two years suggest it must innovate and find new ways to grow
2. Sales are projected to tank by 2.4% over the next 12 months as demand evaporates further
3. ROIC of 7.8% reflects management’s challenges in identifying attractive investment opportunities

G-III is trading at $24.85 per share, or 6.2x forward price-to-earnings. Dive into our free research report to see why there are better opportunities than GIII.

Bristol-Myers Squibb (BMY)

Forward P/E Ratio: 7.3x

With roots dating back to 1887 and a transformative merger in 1989 that gave the company its current name, Bristol-Myers Squibb (NYSE:BMY) discovers, develops, and markets prescription medications for serious diseases including cancer, blood disorders, immunological conditions, and cardiovascular diseases.

Why Does BMY Give Us Pause?

1. Annual sales growth of 2.3% over the last two years lagged behind its healthcare peers as its large revenue base made it difficult to generate incremental demand
2. Costs have risen faster than its revenue over the last five years, causing its adjusted operating margin to decline by 30.2 percentage points
3. Earnings per share fell by 24.7% annually over the last five years while its revenue grew, showing its incremental sales were much less profitable

Bristol-Myers Squibb’s stock price of $50.60 implies a valuation ratio of 7.3x forward price-to-earnings. To fully understand why you should be careful with BMY, check out our full research report (it’s free).

Elanco (ELAN)

Forward P/E Ratio: 9.9x

Originally established as a division of pharmaceutical giant Eli Lilly before becoming independent in 2018, Elanco Animal Health (NYSE:ELAN) develops and sells medications, vaccines, and other health products for pets and farm animals across more than 90 countries.

Why Does ELAN Worry Us?

1. Constant currency growth was below our standards over the past two years, suggesting it might need to invest in product improvements to get back on track
2. Issuance of new shares over the last five years caused its earnings per share to fall by 3.1% annually while its revenue grew
3. Negative returns on capital show management lost money while trying to expand the business

At $8.78 per share, Elanco trades at 9.9x forward price-to-earnings. Read our free research report to see why you should think twice about including ELAN in your portfolio.

Stocks We Like More

Market indices reached historic highs following Donald Trump’s presidential victory in November 2024, but the outlook for 2025 is clouded by new trade policies that could impact business confidence and growth.

While this has caused many investors to adopt a "fearful" wait-and-see approach, we’re leaning into our best ideas that can grow regardless of the political or macroeconomic climate. Take advantage of Mr. Market by checking out our Top 6 Stocks for this week. 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 Sterling Infrastructure (+1,096% five-year return). Find your next big winner with StockStory today for free.