The stock market is not always rational and market valuations are rarely a reliable indicator of a company’s true value. Some stocks should be avoided, because the underlying business is weak. Others should be avoided, even if the issuing company is good, simply because its shares are way too overvalued and the downside risk is huge. In both cases, we are talking about toxic stocks to avoid. Fortunately, fundamental analysis can help us identify them and stay away from the next WorldCom, Enron or Valeant. So, the next time you decide you have found the next hot company to invest in, make sure to check its financial statements first.