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.
This distinction between true value and value traps can challenge even the most skilled investors. Luckily for you, we started StockStory to help you uncover exceptional companies. Keeping that in mind, here is one value stock with strong fundamentals and two climbing an uphill battle.
Two Value Stocks to Sell:
Haemonetics (HAE)
Forward P/E Ratio: 11x
With roots dating back to 1971 and a mission to improve blood-related healthcare, Haemonetics (NYSE: HAE) provides specialized medical devices and software for blood collection, processing, and management across plasma centers, blood banks, and hospitals.
Why Are We Hesitant About HAE?
- Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
- Revenue base of $1.32 billion puts it at a disadvantage compared to larger competitors exhibiting economies of scale
- Underwhelming 6.6% return on capital reflects management’s difficulties in finding profitable growth opportunities
At $56.83 per share, Haemonetics trades at 11x forward P/E. To fully understand why you should be careful with HAE, check out our full research report (it’s free).
Collegium Pharmaceutical (COLL)
Forward P/E Ratio: 4.4x
Pioneering abuse-deterrent technology in a field plagued by addiction concerns, Collegium Pharmaceutical (NASDAQ: COLL) develops and markets specialty medications for treating moderate to severe pain, including abuse-deterrent opioid formulations.
Why Is COLL Not Exciting?
- Smaller revenue base of $780.6 million means it hasn’t achieved the economies of scale that some industry juggernauts enjoy
- Costs have risen faster than its revenue over the last two years, causing its adjusted operating margin to decline by 4.8 percentage points
- Waning returns on capital imply its previous profit engines are losing steam
Collegium Pharmaceutical’s stock price of $32.42 implies a valuation ratio of 4.4x forward P/E. Read our free research report to see why you should think twice about including COLL in your portfolio.
One Value Stock to Buy:
WisdomTree (WT)
Forward P/E Ratio: 13x
Originally founded as a financial media company before pivoting to ETF management in 2006, WisdomTree (NYSE: WT) is a financial services company that creates and manages exchange-traded funds (ETFs) and other investment products for individual and institutional investors.
Why Is WT a Top Pick?
- Annual revenue growth of 18.9% over the last two years was superb and indicates its market share increased during this cycle
- Performance over the past two years was turbocharged by share buybacks, which enabled its earnings per share to grow faster than its revenue
- Stellar return on equity showcases management’s ability to surface highly profitable business ventures
WisdomTree is trading at $14.86 per share, or 13x forward P/E. Is now the time to initiate a position? See for yourself in our full research report, it’s free.
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