3 Undervalued Stocks Showing Red Flags

Understanding Value Stocks: Opportunities and Pitfalls

Value stocks are often priced below the broader market, presenting a chance for patient investors to acquire companies that may be temporarily overlooked. However, these lower prices can signal underlying issues—sometimes a bargain is simply too good to be true.

Distinguishing between undervalued opportunities and potential value traps is a common challenge for investors. That’s why StockStory was created: to help you identify standout companies. With that in mind, let’s examine three value stocks facing significant challenges, along with some alternative investments worth considering.

Rapid7 (RPD)

Forward Price-to-Sales Ratio: 1.1x

Rapid7 (NASDAQ:RPD) specializes in cybersecurity solutions, equipping organizations with tools to identify vulnerabilities, monitor for threats, and respond to security incidents swiftly.

Reasons to Be Cautious About RPD:

• Billing growth was modest at just 3% over the past year, indicating difficulty in driving software sales and possibly necessitating price cuts to boost demand.
• Projections suggest stagnant sales over the next year, pointing to weakening demand.
• Operating expenses have risen as a share of revenue, with operating margins dropping by 2.6 percentage points in the last year.

Currently, Rapid7 is priced at $14.37 per share, reflecting a 1.1x forward price-to-sales ratio.

Great Lakes Dredge & Dock (GLDD)

Forward Price-to-Earnings Ratio: 14.5x

Great Lakes Dredge & Dock (NASDAQ:GLDD), originally founded as Lydon & Drews, delivers dredging, land reclamation, and coastal protection services both in the U.S. and abroad.

Concerns About GLDD:

• Future revenue growth appears limited, as the company’s average backlog growth was just 4.2% over the last two years.
• High input costs have resulted in a low gross margin of 16.9%, requiring increased volume to compensate.
• Ongoing cash burn raises doubts about the company’s ability to achieve lasting growth.

Shares of Great Lakes Dredge & Dock are trading at $13.40, equating to a 14.5x forward P/E ratio.

KB Home (KBH)

Forward Price-to-Earnings Ratio: 13.7x

KB Home (NYSE:KB), the first homebuilder to be listed on the NYSE, focuses on serving first-time and move-up homebuyers.

Why We’re Wary of KBH:

• New order demand has dropped sharply, with the company’s backlog declining by an average of 21.6% over the past two years.
• Earnings per share have decreased by 4.1% annually over the last two years, which could negatively impact long-term share performance.
• Declining returns on capital suggest that the company’s previous profit drivers are losing effectiveness.

KB Home is currently valued at $57.36 per share, translating to a 13.7x forward P/E ratio.

Better Investment Alternatives

Relying on just a handful of stocks can leave your portfolio vulnerable. Now is the time to secure high-quality investments before the market shifts and these opportunities disappear.

Don’t wait for the next bout of market turbulence. Discover our Top 5 Strong Momentum Stocks for this week—a carefully selected group of high-quality companies that have delivered a remarkable 244% return over the past five years (as of June 30, 2025).

Our 2020 picks included well-known names like Nvidia, which soared by 1,326% from June 2020 to June 2025, as well as lesser-known companies such as Tecnoglass, which achieved a 1,754% five-year return. Start your search for the next standout stock with StockStory today.