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. Keeping that in mind, here are three value stocks facing an uphill battle and some other investments you should look into instead.
Newmark (NMRK)
Forward P/E Ratio: 7x
Founded in 1929, Newmark (NASDAQ:NMRK) provides commercial real estate services, including leasing advisory, global corporate services, investment sales and capital markets, property and facilities management, valuation and advisory, and consulting.
Why Do We Steer Clear of NMRK?
- 10.7% annual revenue growth over the last five years was slower than its consumer discretionary peers
- Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of 8% for the last two years
- Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
At $14.78 per share, Newmark trades at 7x forward P/E. Read our free research report to see why you should think twice about including NMRK in your portfolio.
KB Home (KBH)
Forward P/E Ratio: 14.4x
The first homebuilder to be listed on the NYSE, KB Home (NYSE:KBH) is a homebuilding company targeting the first-time home buyer and move-up buyer markets.
Why Do We Avoid KBH?
- Sales pipeline suggests its future revenue growth won’t meet our standards as its backlog averaged 24.4% declines over the past two years
- Falling earnings per share over the last two years has some investors worried as stock prices ultimately follow EPS over the long term
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
KB Home’s stock price of $57.64 implies a valuation ratio of 14.4x forward P/E. If you’re considering KBH for your portfolio, see our FREE research report to learn more.
Oaktree Specialty Lending (OCSL)
Forward P/E Ratio: 9.4x
Managed by Oaktree Capital Management, one of the world's premier alternative investment firms, Oaktree Specialty Lending (NASDAQ:OCSL) is a business development company that provides customized financing solutions to mid-market companies across various industries.
Why Do We Pass on OCSL?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 13.3% annually over the last two years
- Earnings per share fell by 1.8% annually over the last five years while its revenue grew, showing its incremental sales were much less profitable
- Tangible book value per share tumbled by 6.2% annually over the last five years, showing financials sector trends are working against it during this cycle
Oaktree Specialty Lending is trading at $12.79 per share, or 9.4x forward P/E. To fully understand why you should be careful with OCSL, check out our full research report (it’s free).
Stocks We Like More
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Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,460% between June 2020 and June 2025) as well as under-the-radar businesses like the once-small-cap company Exlservice (+271% between June 2020 and June 2025). Find your next big winner with StockStory today.