Value stocks typically trade at discounts to the broader market, offering patient investors the opportunity to buy businesses when they’re out of favor. The key risk, however, is that these stocks are usually cheap for a reason — five cents for a piece of fruit may seem like a great deal until you find out it’s rotten.

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.

Hillman (HLMN)

Forward P/E Ratio: 13x

Established when Max Hillman purchased a franchise operation, Hillman (NASDAQ: HLMN) designs, manufactures, and sells industrial equipment and systems for various sectors.

Why Are We Cautious About HLMN?

1. 2% annual revenue growth over the last five years was slower than its industrials peers
2. Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of 2.9% for the last five years
3. Below-average returns on capital indicate management struggled to find compelling investment opportunities

Hillman is trading at $7.83 per share, or 13x forward P/E. To fully understand why you should be careful with HLMN, check out our full research report (it’s free).

First Merchants (FRME)

Forward P/B Ratio: 0.9x

Dating back to 1893 when it first opened its doors in Indiana, First Merchants (NASDAQ: FRME) is a Midwest regional bank providing commercial, consumer, and wealth management services through branches in Indiana, Ohio, Michigan, and Illinois.

Why Does FRME Give Us Pause?

1. Annual revenue growth of 3.7% over the last two years was below our standards for the banking sector
2. Net interest income trends were unexciting over the last five years as its 7.5% annual growth was below the typical banking firm
3. Earnings per share lagged its peers over the last two years as they only grew by 4% annually

First Merchants’s stock price of $41.21 implies a valuation ratio of 0.9x forward P/B. Read our free research report to see why you should think twice about including FRME in your portfolio.

Darling Ingredients (DAR)

Forward P/E Ratio: 11x

Turning what others consider waste into valuable resources, Darling Ingredients (NYSE: DAR) collects and transforms animal by-products, used cooking oil, and other bio-nutrients into valuable ingredients for food, feed, fuel, and industrial applications.

Why Is DAR Not Exciting?

1. Annual revenue declines of 3.2% over the last three years indicate problems with its market positioning
2. Gross margin of 23.8% is an output of its commoditized products
3. Falling earnings per share over the last three years has some investors worried as stock prices ultimately follow EPS over the long term

At $55.19 per share, Darling Ingredients trades at 11x forward P/E. Dive into our free research report to see why there are better opportunities than DAR.

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