Investing in value stocks has proven to be lucrative for many billionaires like Warren Buffett, who have made fortunes by acquiring quality businesses at reasonable prices. However, the challenge lies in differentiating between genuine bargains and value traps, as many seemingly cheap stocks might have underlying structural issues that hinder their growth.

Identifying the best companies amidst these challenges can be daunting for investors, which is why StockStory was initiated—to aid in discovering promising investments. Here are three value stocks facing obstacles due to poor fundamentals, along with alternative options for consideration.

Urban Outfitters (URBN), initially known for vintage items but now focusing on selling new apparel, particularly to teen and young adult fashion enthusiasts, has seen lackluster 6.9% annual revenue growth over the past five years. This suggests that they are struggling against competitors and experiencing difficulties in effectively allocating funds, leading to low returns on capital. With a stock price of $44.92, URBN's valuation ratio stands at 12.8x forward price-to-earnings.

Macy's (M), a department store chain founded in 1858, faces challenges with weak same-store sales trends and a forecasted revenue decline of 4.7% in the next 12 months, indicating diminishing demand. Additionally, the below-average returns on capital point to management's struggle in identifying compelling investment opportunities. Currently trading at $11.42 per share, Macy's has a forward price-to-earnings ratio of 5.8x.

Dine Brands (DIN), operating the Applebee’s and IHOP franchises, utilizes a franchise model in its casual restaurant chain. The company's caution arises from various concerns, such as the economic landscape, industry-specific challenges, or internal operational constraints affecting its growth and financial performance. DIN is currently valued at 4.2x forward price-to-earnings.