Value investing has produced some of the world’s most famous investing billionaires, including Warren Buffett, David Einhorn, and Seth Klarman, who built their fortunes 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.

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 poor fundamentals and some alternatives you should consider instead.

Caleres (CAL)

Forward P/E Ratio: 7.6x

The owner of Dr. Scholl's, Caleres (NYSE: CAL) is a footwear company offering a range of styles.

Why Do We Think CAL Will Underperform?

1. Lackluster 3.6% annual revenue growth over the last five years indicates the company is losing ground to competitors
2. Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned
3. 7× net-debt-to-EBITDA ratio makes lenders less willing to extend additional capital, potentially necessitating dilutive equity offerings

Caleres is trading at $13.74 per share, or 7.6x forward P/E. If you’re considering CAL for your portfolio, see our FREE research report to learn more.

Hercules Capital (HTGC)

Forward P/E Ratio: 8.6x

Named after the mythological hero known for his strength, Hercules Capital (NYSE: HTGC) is a business development company that provides debt financing to venture capital-backed and growth-stage technology and life sciences companies.

Why Are We Hesitant About HTGC?

1. Earnings per share fell by 3.4% annually over the last two years while its revenue grew, showing its incremental sales were much less profitable
2. High net-debt-to-EBITDA ratio of 6× increases the risk of forced asset sales or dilutive financing if operational performance weakens

Hercules Capital’s stock price of $16.90 implies a valuation ratio of 8.6x forward P/E. Check out our free in-depth research report to learn more about why HTGC doesn’t pass our bar.

World Kinect (WKC)

Forward P/E Ratio: 13.3x

Serving over 150,000 customers from commercial jets to cargo ships to heating oil consumers, World Kinect (NYSE: WKC) procures and delivers fuel and energy products to airlines, shipping companies, trucking fleets, and industrial businesses worldwide.

Why Is WKC Risky?

1. Gross margin of 2.3% is below its competitors, leaving less money to invest in exploration and production
2. Low free cash flow margin of 0.3% for the last five years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders

At $37.15 per share, World Kinect trades at 13.3x forward P/E. Dive into our free research report to see why there are better opportunities than WKC.

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