3 Value Stocks Facing Headwinds

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.

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. That said, here are three value stocks with little support and some other investments you should consider instead.

Flywire (FLYW)

Forward P/S Ratio: 2x

Originally created to process international tuition payments for universities, Flywire (NASDAQ:FLYW) is a cross border payments processor and software platform focusing on complex, high-value transactions like education, healthcare and B2B payments.

Why Does FLYW Fall Short?

  1. Gross margin of 63.7% reflects its relatively high servicing costs

  2. Long payback periods on sales and marketing expenses limit customer growth and signal the company operates in a highly competitive environment

  3. Operating losses show it sacrificed profitability while scaling the business

Flywire’s stock price of $8.90 implies a valuation ratio of 2x forward price-to-sales. To fully understand why you should be careful with FLYW, check out our full research report (it’s free) .

Crocs (CROX)

Forward P/E Ratio: 7.9x

Founded in 2002, Crocs (NASDAQ:CROX) sells casual footwear and is known for its iconic clog shoe.

Why Are We Wary of CROX?

  1. Constant currency revenue growth has disappointed over the past two years and shows demand was soft

  2. Capital intensity will likely ramp up in the next year as its free cash flow margin is expected to contract by 2.9 percentage points

  3. Waning returns on capital imply its previous profit engines are losing steam

At $98.36 per share, Crocs trades at 7.9x forward price-to-earnings. Read our free research report to see why you should think twice about including CROX in your portfolio, it’s free .

KB Home (KBH)

Forward P/E Ratio: 6.6x

The first homebuilder to be listed on the NYSE, KB Home (NYSE:KB) is a homebuilding company targeting the first-time home buyer and move-up buyer markets.

Why Should You Sell KBH?

  1. Sales pipeline suggests its future revenue growth won’t meet our standards as its backlog averaged 22.9% declines over the past two years

  2. Falling earnings per share over the last two years has some investors worried as stock prices ultimately follow EPS over the long term

  3. Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 5.5 percentage points

OK