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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 are three value stocks with poor fundamentals and some alternatives you should consider instead.

Bandwidth (BAND)

Forward P/S Ratio: 0.5x

Started in 1999 by David Morken who was later joined by Henry Kaestner as co-founder in 2001, Bandwidth (NASDAQ:BAND) provides thousands of customers with a software platform that uses its own global network to provide phone numbers, voice, and text connectivity.

Why Do We Pass on BAND?

1. Revenue increased by 13.9% annually over the last three years, acceptable on an absolute basis but tepid for a software company enjoying secular tailwinds

2. Estimated sales growth of 1.7% for the next 12 months implies demand will slow from its three-year trend

3. Gross margin of 38% reflects its high servicing costs

Bandwidth is trading at $14 per share, or 0.5x forward price-to-sales. Check out our free in-depth research report to learn more about why BAND doesn’t pass our bar.

ON24 (ONTF)

Forward P/S Ratio: 1.4x

Started in 1998 as a platform to broadcast press conferences, ON24’s (NYSE:ONTF) software helps organizations organize online webinars and other virtual events and convert prospects into customers.

Why Do We Steer Clear of ONTF?

1. Products, pricing, or go-to-market strategy need some adjustments as its billings have averaged 7.3% declines over the last year

2. Platform has low switching costs as its net revenue retention rate of 91% demonstrates high turnover

3. Long payback periods on sales and marketing expenses limit customer growth and signal the company operates in a highly competitive environment

ON24’s stock price of $4.72 implies a valuation ratio of 1.4x forward price-to-sales. To fully understand why you should be careful with ONTF, check out our full research report (it’s free).

Victoria's Secret (VSCO)

Forward P/E Ratio: 6.9x

Spun off from L Brands in 2020, Victoria’s Secret (NYSE:VSCO) is an intimate clothing and beauty retailer that sells its own brands of lingerie, undergarments, and personal fragrances.

Why Does VSCO Fall Short?

1. Lagging same-store sales over the past two years suggest it might have to change its pricing and marketing strategy to stimulate demand

2. Estimated sales for the next 12 months are flat and imply a softer demand environment

3. Responsiveness to unforeseen market trends is restricted due to its substandard operating profitability