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.
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. Keeping that in mind, here are three value stocks with poor fundamentals and some alternatives you should consider instead.
PENN Entertainment (PENN)
Forward P/E Ratio: 14.3x
Established in 1982, PENN Entertainment (NASDAQ: PENN) is a diversified American operator of casinos, sports betting, and entertainment venues.
Why Should You Sell PENN?
- Lackluster 2% annual revenue growth over the last two years indicates the company is losing ground to competitors
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
- High net-debt-to-EBITDA ratio of 6× could force the company to raise capital at unfavorable terms if market conditions deteriorate
At $14.82 per share, PENN Entertainment trades at 14.3x forward P/E. If you’re considering PENN for your portfolio, see our FREE research report to learn more.
Insteel (IIIN)
Forward P/E Ratio: 11x
Growing from a small wire manufacturer to one of the largest in the U.S., Insteel (NYSE: IIIN) provides steel wire reinforcing products for concrete.
Why Does IIIN Fall Short?
- Products and services are facing end-market challenges during this cycle, as seen in its flat sales over the last two years
- Free cash flow margin shrank by 5.9 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
- Diminishing returns on capital suggest its earlier profit pools are drying up
Insteel’s stock price of $32.28 implies a valuation ratio of 11x forward P/E. Read our free research report to see why you should think twice about including IIIN in your portfolio.
MillerKnoll (MLKN)
Forward P/E Ratio: 7.6x
Created through the 2021 merger of industry icons Herman Miller and Knoll, MillerKnoll (NASDAQ: MLKN) designs, manufactures, and distributes interior furnishings for offices, healthcare facilities, educational settings, and homes worldwide.
Why Do We Pass on MLKN?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 2.1% annually over the last two years
- Projected sales growth of 1.2% for the next 12 months suggests sluggish demand
- Earnings per share fell by 7.2% annually over the last five years while its revenue grew, showing its incremental sales were much less profitable
MillerKnoll is trading at $14.77 per share, or 7.6x forward P/E. To fully understand why you should be careful with MLKN, check out our full research report (it’s free for active Edge members).
High-Quality Stocks for All Market Conditions
If your portfolio success hinges on just 4 stocks, your wealth is built on fragile ground. You have a small window to secure high-quality assets before the market widens and these prices disappear.
Don’t wait for the next volatility shock. Check out our Top 5 Growth Stocks for this month. This is a curated list of our High Quality stocks that have generated a market-beating return of 244% over the last five years (as of June 30, 2025).
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,326% between June 2020 and June 2025) as well as under-the-radar businesses like the once-small-cap company Comfort Systems (+782% five-year return). Find your next big winner with StockStory today for free. Find your next big winner with StockStory today. Find your next big winner with StockStory today
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