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.
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 two value stocks trading at big discounts to their intrinsic values and one with little support.
One Value Stock to Sell:
D.R. Horton (DHI)
Forward P/E Ratio: 9.4x
One of the largest homebuilding companies in the U.S., D.R. Horton (NYSE:DHI) builds a variety of new construction homes across multiple markets.
Why Does DHI Fall Short?
- Backlog has dropped by 22.2% on average over the past two years, suggesting it’s losing orders as competition picks up
- Earnings per share have dipped by 6.3% annually over the past two years, which is concerning because stock prices follow EPS over the long term
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
D.R. Horton’s stock price of $129.21 implies a valuation ratio of 9.4x forward price-to-earnings. Check out our free in-depth research report to learn more about why DHI doesn’t pass our bar.
Two Value Stocks to Watch:
United Parks & Resorts (PRKS)
Forward P/E Ratio: 9.6x
Parent company of SeaWorld and home of the world-famous Shamu, United Parks & Resorts (NYSE:PRKS) is a theme park chain featuring marine life, live entertainment, roller coasters, and waterparks.
Why Could PRKS Be a Winner?
- Disciplined cost controls and effective management resulted in a strong two-year operating margin of 26.7%
- Share buybacks catapulted its annual earnings per share growth to 24.3%, which outperformed its revenue gains over the last five years
- Returns on capital are climbing as management makes more lucrative bets
At $45.96 per share, United Parks & Resorts trades at 9.6x forward price-to-earnings. Is now the right time to buy? See for yourself in our in-depth research report, it’s free.
United Therapeutics (UTHR)
Forward P/E Ratio: 10.1x
Founded in 1996 with a focus on treating rare diseases, United Therapeutics (NASDAQ:UTHR) is a biotechnology company focused on developing and commercializing innovative therapies for rare diseases, particularly pulmonary arterial hypertension (PAH).
Why Does UTHR Stand Out?
- Market share has increased this cycle as its 21.9% annual revenue growth over the last two years was exceptional
- Impressive free cash flow profitability enables the company to fund new investments or reward investors with share buybacks/dividends
- Rising returns on capital show management is finding more attractive investment opportunities
United Therapeutics is trading at $304.80 per share, or 10.1x forward price-to-earnings. Is now a good time to buy? Find out in our full research report, it’s free.
Stocks We Like Even More
The elections are now behind us. With rates dropping and inflation cooling, many analysts expect a breakout market - and we’re zeroing in on the stocks that could benefit immensely.
Take advantage of the rebound by checking out our Top 5 Growth Stocks for this month. This is a curated list of our High Quality stocks that have generated a market-beating return of 175% over the last five years.
Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like Sterling Infrastructure (+1,096% five-year return). Find your next big winner with StockStory today for free.