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.

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 is one value stock offering a compelling risk-reward profile and two climbing an uphill battle.

Two Value Stocks to Sell:

Frontdoor (FTDR)

Forward P/E Ratio: 12x

Established in 2018 as a spin-off from ServiceMaster Global Holdings, Frontdoor (NASDAQ:FTDR) is a provider of home warranty and service plans.

Why Does FTDR Worry Us?

1. Demand for its offerings was relatively low as its number of home service plans has underwhelmed

2. Anticipated sales growth of 9.9% for the next year implies demand will be shaky

3. Capital intensity will likely ramp up in the next year as its free cash flow margin is expected to contract by 1.4 percentage points

Frontdoor’s stock price of $39.39 implies a valuation ratio of 12x forward price-to-earnings. To fully understand why you should be careful with FTDR, check out our full research report (it’s free) .

Ball (BALL)

Forward P/E Ratio: 13.4x

Started with a $200 loan in 1880, Ball (NYSE:BLL) manufactures aluminum packaging for beverages, personal care, and household products as well as aerospace systems and other technologies.

Why Do We Think BALL Will Underperform?

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. Projected sales growth of 2.8% for the next 12 months suggests sluggish demand

3. 5.8 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

Ball is trading at $47.60 per share, or 13.4x forward price-to-earnings. If you’re considering BALL for your portfolio, see our FREE research report to learn more .

One Value Stock to Watch:

Kirby (KEX)

Forward P/E Ratio: 13.1x

Transporting goods along all U.S. coasts, Kirby (NYSE:KEX) provides inland and coastal marine transportation services.

Why Does KEX Stand Out?

1. Operating margin improvement of 31.6 percentage points over the last five years demonstrates its ability to scale efficiently

2. Share repurchases over the last two years enabled its annual earnings per share growth of 61.3% to outpace its revenue gains

3. Returns on capital are increasing as management’s prior bets are starting to bear fruit