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. That said, here are three value stocks with poor fundamentals and some alternatives you should consider instead.

J. M. Smucker (SJM)

Forward P/E Ratio: 11x

Best known for its fruit jams and spreads, J.M Smucker (NYSE:SJM) is a packaged foods company whose products span from peanut butter and coffee to pet food.

Why Are We Cautious About SJM?

1. Muted 3.7% annual revenue growth over the last three years shows its demand lagged behind its consumer staples peers

2. Sales are projected to remain flat over the next 12 months as demand decelerates from its three-year trend

3. Low returns on capital reflect management’s struggle to allocate funds effectively, and its falling returns suggest its earlier profit pools are drying up

J. M. Smucker’s stock price of $111.49 implies a valuation ratio of 11x forward price-to-earnings. If you’re considering SJM for your portfolio, see our FREE research report to learn more .

Nu Skin (NUS)

Forward P/E Ratio: 7.6x

With person-to-person marketing and sales rather than selling through retail stores, Nu Skin (NYSE:NUS) is a personal care and dietary supplements company that engages in direct selling.

Why Do We Avoid NUS?

1. Annual revenue declines of 13.7% over the last three years indicate problems with its market positioning

2. Overall productivity fell over the last year as its plummeting sales were accompanied by a decline in its operating margin

3. Sales were less profitable over the last three years as its earnings per share fell by 41.2% annually, worse than its revenue declines

Nu Skin is trading at $8.20 per share, or 7.6x forward price-to-earnings. Read our free research report to see why you should think twice about including NUS in your portfolio, it’s free .

MasterCraft (MCFT)

Forward P/E Ratio: 15.6x

Started by a waterskiing instructor, MasterCraft (NASDAQ:MCFT) specializes in designing, manufacturing, and selling sport boats.

Why Are We Wary of MCFT?

1. Sluggish trends in its boats sold suggest customers aren’t adopting its solutions as quickly as the company hoped

2. Projected sales growth of 7.2% for the next 12 months suggests sluggish demand

3. Performance over the past five years shows each sale was less profitable as its earnings per share dropped by 26.6% annually, worse than its revenue

At $17.96 per share, MasterCraft trades at 15.6x forward price-to-earnings. Check out our free in-depth research report to learn more about why MCFT doesn’t pass our bar .

Stocks We Like More

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