3 Value Stocks with Red Flags

Value investing has created more billionaires than any other strategy, like Warren Buffett, who built his fortune by purchasing wonderful businesses at reasonable prices. But these hidden gems are few and far between - many stocks that appear cheap often stay that way because they face structural issues.

Separating the winners from the value traps is a tough challenge, and that’s where StockStory comes in. Our job is to find you high-quality companies that will stand the test of time. That said, here are three value stocks with poor fundamentals and some alternatives you should consider instead.

Spectrum Brands (SPB)

Forward P/E Ratio: 11.2x

A leader in multiple consumer product categories, Spectrum Brands (NYSE:SPB) is a diversified company with a portfolio of trusted brands spanning home appliances, garden care, personal care, and pet care.

Why Are We Out on SPB?

1. Organic revenue growth fell short of our benchmarks over the past two years and implies it may need to improve its products, pricing, or go-to-market strategy
2. Cash burn makes us question whether it can achieve sustainable long-term growth
3. Below-average returns on capital indicate management struggled to find compelling investment opportunities, and its decreasing returns suggest its historical profit centers are aging

At $61.79 per share, Spectrum Brands trades at 11.2x forward price-to-earnings. If you’re considering SPB for your portfolio, see our FREE research report to learn more.

Sirius XM (SIRI)

Forward P/E Ratio: 6.6x

Known for its commercial-free music channels, Sirius XM (NASDAQ:SIRI) is a broadcasting company that provides satellite radio and online radio services across North America.

Why Is SIRI Risky?

1. Number of core subscribers has disappointed over the past two years, indicating weak demand for its offerings
2. Earnings per share fell by 44.6% annually over the last five years while its revenue grew, showing its incremental sales were much less profitable
3. Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability

Sirius XM is trading at $20.50 per share, or 6.6x forward price-to-earnings. To fully understand why you should be careful with SIRI, check out our full research report (it’s free).

Hasbro (HAS)

Forward P/E Ratio: 12.1x

Credited with the creation of toys such as Mr. Potato Head and the Rubik’s Cube, Hasbro (NASDAQ:HAS) is a global entertainment company offering a diverse range of toys, games, and multimedia experiences for children and families.

Why Do We Think HAS Will Underperform?

1. Products and services have few die-hard fans as sales have declined by 2.6% annually over the last five years
2. Suboptimal cost structure is highlighted by its history of operating losses
3. Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results

Hasbro’s stock price of $53.07 implies a valuation ratio of 12.1x forward price-to-earnings. Read our free research report to see why you should think twice about including HAS in your portfolio.

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 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 Axon (+711% five-year return). Find your next big winner with StockStory today for free.