Yahoo Finance

The low valuation multiples for value stocks provide a margin of safety that growth stocks rarely offer. However, the challenge lies in determining whether these cheap assets are genuinely undervalued or simply on sale due to their potentially deteriorating business models.

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. That said, here are three value stocks with little support and some other investments you should consider instead.

RingCentral (RNG)

Forward P/S Ratio: 0.9x

Founded in 1999 during the dot-com era, RingCentral (NYSE:RNG) provides software as a service that unifies phone, text, fax, video calls and chat in one platform.

Why Are We Hesitant About RNG?

1. Average ARR growth of 8.9% over the last year has disappointed, suggesting it’s had a hard time winning long-term deals and renewals

2. Customers have churned over the last year due to the commoditized nature of its software, as reflected in its 99.1% net revenue retention rate

3. Estimated sales growth of 4.6% for the next 12 months implies demand will slow from its three-year trend

RingCentral is trading at $24.99 per share, or 0.9x forward price-to-sales. Dive into our free research report to see why there are better opportunities than RNG.

Amkor (AMKR)

Forward P/E Ratio: 10.2x

Operating through a largely Asian facility footprint, Amkor Technologies (NASDAQ:AMKR) provides outsourced packaging and testing for semiconductors.

Why Do We Steer Clear of AMKR?

1. Customers postponed purchases of its products and services this cycle as its revenue declined by 5.1% annually over the last two years

2. High input costs result in an inferior gross margin of 14.5% that must be offset through higher volumes

3. Subpar operating margin of 6.9% has withered over the last five years, constraining its ability to invest in process improvements or effectively respond to new competitive threats

At $17.40 per share, Amkor trades at 10.2x forward P/E. Check out our free in-depth research report to learn more about why AMKR doesn’t pass our bar.

Quest Resource (QRHC)

Forward P/E Ratio: 6.1x

Recycling corporate waste to help companies be more sustainable, Quest Resource (NASDAQ:QRHC) is a provider of waste and recycling services.

Why Do We Pass on QRHC?

1. Products and services are facing end-market challenges during this cycle, as seen in its flat sales over the last two years

2. Free cash flow margin dropped by 6.4 percentage points over the last five years, implying the company became more capital intensive as competition picked up

3. Short cash runway increases the probability of a capital raise that dilutes existing shareholders