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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.

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 climbing an uphill battle and some other investments you should look into instead.

Scholastic (SCHL)

Forward P/E Ratio: 10.5x

Creator of the legendary Scholastic Book Fair, Scholastic (NASDAQ:SCHL) is an international company specializing in children's publishing, education, and media services.

Why Do We Think Twice About SCHL?

1. Sales stagnated over the last five years and signal the need for new growth strategies

2. Poor expense management has led to an operating margin of 3% that is below the industry average

3. Low returns on capital reflect management’s struggle to allocate funds effectively

Scholastic is trading at $17.94 per share, or 10.5x forward P/E. Check out our free in-depth research report to learn more about why SCHL doesn’t pass our bar.

MillerKnoll (MLKN)

Forward P/E Ratio: 7.2x

Created through the 2021 merger of industry icons Herman Miller and Knoll, MillerKnoll (NASDAQ:MLKN) designs, manufactures, and distributes interior furnishings for offices, healthcare facilities, educational settings, and homes worldwide.

Why Should You Dump MLKN?

1. Annual sales declines of 7.8% for the past two years show its products and services struggled to connect with the market during this cycle

2. Performance over the past five years shows its incremental sales were much less profitable, as its earnings per share fell by 9.6% annually

3. Free cash flow margin dropped by 4.7 percentage points over the last five years, implying the company became more capital intensive as competition picked up

MillerKnoll’s stock price of $17.69 implies a valuation ratio of 7.2x forward P/E. To fully understand why you should be careful with MLKN, check out our full research report (it’s free).

Fortrea (FTRE)

Forward P/E Ratio: 8.7x

Spun off from Labcorp in 2023 to focus exclusively on clinical research services, Fortrea (NASDAQ:FTRE) is a contract research organization that helps pharmaceutical, biotech, and medical device companies develop and bring their products to market through clinical trials and support services.

Why Are We Out on FTRE?

1. Sales tumbled by 5.6% annually over the last two years, showing market trends are working against its favor during this cycle

2. Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value

3. 6× net-debt-to-EBITDA ratio makes lenders less willing to extend additional capital, potentially necessitating dilutive equity offerings