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. That said, here are three value stocks with poor fundamentals and some alternatives you should consider instead.

Shutterstock (SSTK)

Forward EV/EBITDA Ratio: 2.5x

Originally featuring a library that included many of founder Jon Oringer’s photos, Shutterstock (NYSE:SSTK) is now a digital platform where customers can license and use hundreds of millions of pieces of content.

Why Are We Hesitant About SSTK?

1. Muted 6.5% annual revenue growth over the last three years shows its demand lagged behind its consumer internet peers

2. Earnings per share lagged its peers over the last three years as they only grew by 5.6% annually

3. Capital intensity has ramped up over the last few years as its free cash flow margin decreased by 25.9 percentage points

Shutterstock is trading at $19.72 per share, or 2.5x forward EV-to-EBITDA. To fully understand why you should be careful with SSTK, check out our full research report (it’s free) .

Perdoceo Education (PRDO)

Forward P/E Ratio: 10.5x

Formerly known as Career Education Corporation, Perdoceo Education (NASDAQ:PRDO) is an educational services company that specializes in postsecondary education.

Why Are We Cautious About PRDO?

1. Annual revenue declines of 1% over the last two years indicate problems with its market positioning

2. Projected sales for the next 12 months are flat and suggest demand will be subdued

3. Diminishing returns on capital suggest its earlier profit pools are drying up

Perdoceo Education’s stock price of $24.77 implies a valuation ratio of 10.5x forward price-to-earnings. If you’re considering PRDO for your portfolio, see our FREE research report to learn more .

Integra LifeSciences (IART)

Forward P/E Ratio: 9.3x

Founded in 1989 as a pioneer in regenerative medicine technology, Integra LifeSciences (NASDAQ:IART) develops and manufactures medical technologies for neurosurgery, wound care, and surgical reconstruction, including regenerative tissue products and surgical instruments.

Why Do We Avoid IART?

1. Organic revenue growth fell short of our benchmarks over the past two years and implies it may need to improve its products, pricing, or go-to-market strategy

2. Earnings per share fell by 1.4% annually over the last five years while its revenue grew, showing its incremental sales were much less profitable

3. Free cash flow margin shrank by 10.5 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive