In This Article:
Value investing has created more billionaires than any other strategy, like Warren Buffett, who built his fortune 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.
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 offering a compelling risk-reward profile and two climbing an uphill battle.
Two Value Stocks to Sell:
LegalZoom (LZ)
Forward EV/EBITDA Ratio: 8.3x
Founded by famous lawyer Robert Shapiro, LegalZoom (NASDAQ:LZ) offers online legal services and documentation assistance for individuals and businesses.
Why Are We Hesitant About LZ?
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Lackluster 5.8% annual revenue growth over the last three years indicates the company is losing ground to competitors
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Decision to emphasize platform growth over monetization has contributed to sluggish trends in its average revenue per user
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Projected sales growth of 4.5% for the next 12 months suggests sluggish demand
LegalZoom is trading at $7.32 per share, or 8.3x forward EV-to-EBITDA. Check out our free in-depth research report to learn more about why LZ doesn’t pass our bar.
Zimmer Biomet (ZBH)
Forward P/E Ratio: 12x
With a history dating back to 1927 and a presence in over 100 countries worldwide, Zimmer Biomet (NYSE:ZBH) designs and manufactures orthopedic products including knee and hip replacements, surgical tools, and robotic technologies for joint reconstruction and spine surgeries.
Why Is ZBH Not Exciting?
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Sales stagnated over the last five years and signal the need for new growth strategies
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Flat earnings per share over the last five years underperformed the sector average
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ROIC of 3% reflects management’s challenges in identifying attractive investment opportunities
Zimmer Biomet’s stock price of $103.05 implies a valuation ratio of 12x forward price-to-earnings. Read our free research report to see why you should think twice about including ZBH in your portfolio, it’s free.
One Value Stock to Watch:
United Therapeutics (UTHR)
Forward P/E Ratio: 10.3x
Founded by a mother seeking treatment for her daughter's pulmonary arterial hypertension, United Therapeutics (NASDAQ:UTHR) develops and commercializes medications for chronic lung diseases and other life-threatening conditions, with a focus on pulmonary hypertension treatments.
Why Does UTHR Stand Out?
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Impressive 22.9% annual revenue growth over the last two years indicates it’s winning market share this cycle
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Impressive free cash flow profitability enables the company to fund new investments or reward investors with share buybacks/dividends
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Returns on capital are climbing as management makes more lucrative bets