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 little support and some other investments you should consider instead.

Penguin Solutions (PENG)

Forward P/E Ratio: 15.4x

Based in the US, Penguin Solutions (NASDAQ: PENG) is a diversified semiconductor company offering memory, digital, and LED products.

Why Is PENG Risky?

1. Products and services are facing significant end-market challenges during this cycle as sales have declined by 5% annually over the last two years
2. Poor expense management has led to an operating margin of 2.5% that is below the industry average
3. Low returns on capital reflect management’s struggle to allocate funds effectively, and its shrinking returns suggest its past profit sources are losing steam

Penguin Solutions’s stock price of $26.15 implies a valuation ratio of 15.4x forward P/E. Check out our free in-depth research report to learn more about why PENG doesn’t pass our bar.

Malibu Boats (MBUU)

Forward P/E Ratio: 13x

Founded in California in 1982, Malibu Boats (NASDAQ: MBUU) is a manufacturer of high-performance sports boats and luxury watercrafts.

Why Should You Dump MBUU?

1. Sluggish trends in its boats sold suggest customers aren’t adopting its solutions as quickly as the company hoped
2. Performance over the past five years shows its incremental sales were much less profitable, as its earnings per share fell by 14.2% annually
3. Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value

Malibu Boats is trading at $33.46 per share, or 13x forward P/E. Read our free research report to see why you should think twice about including MBUU in your portfolio.

Meritage Homes (MTH)

Forward P/E Ratio: 9.3x

Originally founded in 1985 in Arizona as Monterey Homes, Meritage Homes (NYSE: MTH) is a homebuilder specializing in designing and constructing energy-efficient and single-family homes in the US.

Why Should You Sell MTH?

1. Backlog has dropped by 36.5% on average over the past two years, suggesting it’s losing orders as competition picks up
2. 6.6 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position
3. Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability

At $81.06 per share, Meritage Homes trades at 9.3x forward P/E. Dive into our free research report to see why there are better opportunities than MTH.

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