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.
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. Keeping that in mind, here are three value stocks climbing an uphill battle and some other investments you should look into instead.
American Express Global Business Travel (GBTG)
Forward P/S Ratio: 1.5x
Originally spun off from American Express in 2014 but maintaining the Amex GBT brand, Global Business Travel Group (NYSE:GBTG) provides end-to-end business travel and expense management solutions, connecting corporate clients with travel suppliers and offering specialized software services.
Why Is GBTG Not Exciting?
- Estimated sales growth of 5% for the next 12 months implies demand will slow from its three-year trend
- High servicing costs result in a relatively inferior gross margin of 61.1% that must be offset through increased usage
- Low free cash flow margin of 5.9% for the last year gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders
American Express Global Business Travel’s stock price of $8.14 implies a valuation ratio of 1.5x forward price-to-sales. Dive into our free research report to see why there are better opportunities than GBTG.
United Airlines (UAL)
Forward P/E Ratio: 9.8x
Founded in 1926, United Airlines Holdings (NASDAQ:UAL) operates a global airline network, providing passenger and cargo air transportation services across domestic and international routes.
Why Do We Think Twice About UAL?
- Sluggish trends in its revenue passenger miles suggest customers aren’t adopting its solutions as quickly as the company hoped
- Poor free cash flow margin of 2.9% for the last two years limits its freedom to invest in growth initiatives, execute share buybacks, or pay dividends
- Low returns on capital reflect management’s struggle to allocate funds effectively
At $106.10 per share, United Airlines trades at 9.8x forward P/E. Check out our free in-depth research report to learn more about why UAL doesn’t pass our bar.
HNI (HNI)
Forward P/E Ratio: 12.4x
With roots dating back to 1944 and a significant acquisition of Kimball International in 2023, HNI (NYSE:HNI) manufactures and sells office furniture systems, seating, and storage solutions, as well as residential fireplaces and heating products.
Why Does HNI Fall Short?
- Sales trends were unexciting over the last five years as its 4.9% annual growth was below the typical business services company
- Estimated sales growth of 3.4% for the next 12 months implies demand will slow from its two-year trend
- Free cash flow margin dropped by 2.2 percentage points over the last five years, implying the company became more capital intensive as competition picked up
HNI is trading at $46.23 per share, or 12.4x forward P/E. If you’re considering HNI for your portfolio, see our FREE research report to learn more.
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