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 two value stocks offering compelling risk-reward profiles and one with little support.
Forward P/E Ratio: 8.6x
Dating back to 1912 and formerly known as Springleaf, OneMain Holdings (NYSE:OMF) provides personal loans, auto financing, and credit cards to nonprime consumers who have limited access to traditional banking services.
Why Does OMF Fall Short?
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Muted 4.3% annual revenue growth over the last five years shows its demand lagged behind its financials peers
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Earnings growth underperformed the sector average over the last five years as its EPS grew by just 3.4% annually
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High debt-to-equity ratio of 6.6× shows the firm carries too much debt relative to shareholder equity, increasing bankruptcy risk
OneMain’s stock price of $65.33 implies a valuation ratio of 8.6x forward P/E. Dive into our free research report to see why there are better opportunities than OMF.
Forward P/E Ratio: 14.5x
Having been at the forefront of developing the standards for cellular connectivity for over four decades, Qualcomm (NASDAQ:QCOM) is a leading innovator and a fabless manufacturer of wireless technology chips used in smartphones, autos and internet of things appliances.
Why Are We Fans of QCOM?
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Market share has increased this cycle as its 15.3% annual revenue growth over the last five years was exceptional
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Robust free cash flow margin of 28.9% gives it many options for capital deployment, and its rising cash conversion increases its margin of safety
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Industry-leading 47% return on capital demonstrates management’s skill in finding high-return investments
Qualcomm is trading at $175.82 per share, or 14.5x forward P/E. Is now the time to initiate a position? Find out in our full research report, it’s free for active Edge members.
Forward EV/EBITDA Ratio: 2.5x
Launched by Reed Hastings as a DVD mail rental company until its famous pivot to streaming in 2007, Netflix (NASDAQ: NFLX) is a pioneering streaming content platform.
Why Will NFLX Outperform?
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Global Streaming Paid Memberships are rising, meaning the company can increase revenue without incurring additional customer acquisition costs if it can cross-sell additional products and features
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Share repurchases have amplified shareholder returns as its annual earnings per share growth of 29% exceeded its revenue gains over the last three years
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Free cash flow margin grew by 18.4 percentage points over the last few years, giving the company more chips to play with