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.

Skyworks Solutions (SWKS)

Forward P/E Ratio: 13x

Result of a merger of Alpha Industries and the wireless communications division of Conexant, Skyworks Solutions (NASDAQ: SWKS) is a designer and manufacturer of chips used in smartphones, autos, and industrial applications to amplify, filter, and process wireless signals.

Why Do We Steer Clear of SWKS?

1. Annual sales declines of 12.7% for the past two years show its products and services struggled to connect with the market during this cycle

2. Forecasted revenue decline of 8.7% for the upcoming 12 months implies demand will fall even further

3. Expenses have increased as a percentage of revenue over the last five years as its operating margin fell by 16 percentage points

Skyworks Solutions is trading at $70.01 per share, or 13x forward price-to-earnings. Read our free research report to see why you should think twice about including SWKS in your portfolio, it’s free .

Hanesbrands (HBI)

Forward P/E Ratio: 11.1x

A classic American staple founded in 1901, Hanesbrands (NYSE: HBI) is a clothing company known for its array of basic apparel including innerwear and activewear.

Why Do We Avoid HBI?

1. Underwhelming constant currency revenue performance over the past two years suggests its product offering at current prices doesn’t resonate with customers

2. Sales were less profitable over the last five years as its earnings per share fell by 22.5% annually, worse than its revenue declines

3. Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned

At $6.06 per share, Hanesbrands trades at 11.1x forward price-to-earnings. Check out our free in-depth research report to learn more about why HBI doesn’t pass our bar .

AMC Networks (AMCX)

Forward P/E Ratio: 2.1x

Originally the joint-venture of four cable television companies, AMC Networks (NASDAQ:AMCX) is a broadcaster producing a diverse range of television shows and movies.

Why Is AMCX Risky?

1. Annual sales declines of 4.6% for the past five years show its products and services struggled to connect with the market

2. Free cash flow margin is forecasted to shrink by 3.6 percentage points in the coming year, suggesting the company will consume more capital to keep up with its competitors

3. Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results

AMC Networks’s stock price of $7 implies a valuation ratio of 2.1x forward price-to-earnings. Dive into our free research report to see why there are better opportunities than AMCX .

Stocks We Like More

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