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.

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. That said, here are three value stocks climbing an uphill battle and some other investments you should look into instead.

Churchill Downs (CHDN)

Forward P/E Ratio: 13.4x

Famous for hosting the Kentucky Derby, Churchill Downs (NASDAQ: CHDN) operates a horse racing, online wagering, and gaming entertainment business in the United States.

Why Is CHDN Risky?

1. Muted 9% annual revenue growth over the last two years shows its demand lagged behind its consumer discretionary peers
2. Free cash flow margin is forecasted to grow by 1.2 percentage points in the coming year, potentially giving the company more chips to play with
3. Returns on capital are growing as management invests in more worthwhile ventures

Churchill Downs’s stock price of $88.15 implies a valuation ratio of 13.4x forward P/E. To fully understand why you should be careful with CHDN, check out our full research report (it’s free).

Owens Corning (OC)

Forward P/E Ratio: 12x

Credited with the discovery of fiberglass, Owens Corning (NYSE: OC) supplies building and construction materials to the United States and international markets.

Why Are We Out on OC?

1. Annual sales growth of 2.2% over the last two years lagged behind its industrials peers as its large revenue base made it difficult to generate incremental demand
2. Incremental sales over the last two years were much less profitable as its earnings per share fell by 7.5% annually while its revenue grew
3. Eroding returns on capital suggest its historical profit centers are aging

At $114.94 per share, Owens Corning trades at 12x forward P/E. Read our free research report to see why you should think twice about including OC in your portfolio.

Align Technology (ALGN)

Forward P/E Ratio: 15.7x

Pioneering an alternative to traditional metal braces with nearly invisible plastic aligners, Align Technology (NASDAQ: ALGN) designs and manufactures Invisalign clear aligners, iTero intraoral scanners, and dental CAD/CAM software for orthodontic and restorative treatments.

Why Does ALGN Worry Us?

1. 2.2% annual revenue growth over the last two years was slower than its healthcare peers
2. Efficiency has decreased over the last five years as its adjusted operating margin fell by 5.3 percentage points
3. Waning returns on capital imply its previous profit engines are losing steam

Align Technology is trading at $174.37 per share, or 15.7x forward P/E. Dive into our free research report to see why there are better opportunities than ALGN.

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