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.

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 little support and some other investments you should consider instead.

Denny's (DENN)

Forward P/E Ratio: 8.6x

Open around the clock, Denny’s (NASDAQ:DENN) is a chain of diner restaurants serving breakfast and traditional American fare.

Why Are We Out on DENN?

1. Reduction in its number of restaurants signals a focus on profitability through targeted consolidation

2. Smaller revenue base of $452.3 million means it hasn’t achieved the economies of scale that some industry juggernauts enjoy

3. Free cash flow margin shrank by 13.2 percentage points over the last year, suggesting the company is consuming more capital to stay competitive

Denny’s stock price of $5.09 implies a valuation ratio of 8.6x forward price-to-earnings. If you’re considering DENN for your portfolio, see our FREE research report to learn more .

Hain Celestial (HAIN)

Forward P/E Ratio: 7.5x

Sold in over 75 countries around the world, Hain Celestial (NASDAQ:HAIN) is a natural and organic food company whose products range from snacks to teas to baby food.

Why Is HAIN Risky?

1. Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion

2. Sales are projected to tank by 1.3% over the next 12 months as its demand continues evaporating

3. Performance over the past three years shows each sale was less profitable as its earnings per share dropped by 41.2% annually, worse than its revenue

Hain Celestial is trading at $3.60 per share, or 7.5x forward price-to-earnings. Read our free research report to see why you should think twice about including HAIN in your portfolio, it’s free .

Herbalife (HLF)

Forward P/E Ratio: 4.1x

With the first products sold out of the trunk of the founder’s car, Herbalife (NYSE:HLF) today offers a portfolio of shakes, supplements, personal care products, and weight management programs to help customers reach their nutritional and fitness goals.

Why Do We Think Twice About HLF?

1. Declining unit sales over the past two years indicate demand is soft and that the company may need to revise its product strategy

2. Demand will likely be weak over the next 12 months as Wall Street expects flat revenue

3. Earnings per share decreased by more than its revenue over the last three years, showing each sale was less profitable