Value investing has produced some of the world’s most famous investing billionaires, including Warren Buffett, David Einhorn, and Seth Klarman, who built their fortunes 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 facing an uphill battle.
One Value Stock to Sell:
8x8 (EGHT)
Forward P/S Ratio: 0.4x
Named after its founding year (1987) with "8x8" representing binary code for communications, 8x8 (NASDAQ:EGHT) provides cloud-based contact center and unified communications solutions that enable businesses to manage customer interactions and internal communications through a single platform.
Why Do We Avoid EGHT?
- Offerings struggled to generate meaningful interest as its average billings growth of 4.6% over the last year did not impress
- Demand will likely be weak over the next 12 months as Wall Street expects flat revenue
- Static operating margin over the last year shows it couldn’t become more efficient
At $2.17 per share, 8x8 trades at 0.4x forward price-to-sales. To fully understand why you should be careful with EGHT, check out our full research report (it’s free).
Two Value Stocks to Watch:
LegalZoom (LZ)
Forward EV/EBITDA Ratio: 4.8x
Founded by famous lawyer Robert Shapiro, LegalZoom (NASDAQ:LZ) offers online legal services and documentation assistance for individuals and businesses.
Why Do We Like LZ?
- Subscription Units have increased by an average of 11.6% annually, giving it the potential for margin-accretive growth if it can develop valuable complementary products and features
- Switching costs of its platform were on full display over the last two years as it not only grew engagement but also increased the average revenue per user by 35.2% annually
- Share repurchases have amplified shareholder returns as its annual earnings per share growth of 31.2% exceeded its revenue gains over the last three years
LegalZoom is trading at $6.33 per share, or 4.8x forward EV/EBITDA. Is now a good time to buy? See for yourself in our comprehensive research report, it’s free.
EPAM (EPAM)
Forward P/E Ratio: 7.5x
Founded in 1993 during the early days of offshore software development, EPAM Systems (NYSE:EPAM) provides digital engineering, cloud, and AI transformation services to help global enterprises and startups modernize their technology systems and create digital products.
Why Could EPAM Be a Winner?
- Market share has increased this cycle as its 14.8% annual revenue growth over the last five years was exceptional
- Earnings growth has easily exceeded the peer group average over the last five years as its EPS has compounded at 12.2% annually
- Stellar returns on capital showcase management’s ability to surface highly profitable business ventures
EPAM’s stock price of $99 implies a valuation ratio of 7.5x forward P/E. Is now the time to initiate a position? Find out in our full research report, it’s free.
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Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,326% between June 2020 and June 2025) as well as under-the-radar businesses like the once-small-cap company Exlservice (+354% five-year return). Find your next big winner with StockStory today.