How do we know if we are buying a company that is a value trap or at a bargain?
One of the biggest misconception of determining if a company is a
value trap would be on the stock price. A stock that is trading at the same
cheap price for years does not necessarily mean it is a value trap. Rather, the two key criteria that one should be assessing would be the company’s historical intrinsic value and financial performance.
Value Trap
- The slow erosion of the company’s intrinsic value. More often than not in such scenarios, we would have mistaken the past for the future. This is where we believe that the financial performance of the company would revert back upwards. However, it could just be that the future of the company is not going to be as rosy as before due to some structural change within the industry. ...
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