We all love cheap things, and in the investment circles a lot of people also love “cheap” companies based on their valuations, for they are not really priced at their actual value, thus there is money to be made in the price-value difference. Whether you are a value investor, a growth investor, a dividend investor or a combination of either two or all three, the potential is there.
However, there is also this term that floats around the investing community, and that is “value trap”. This phrase is usually used, seen and/or heard when sourcing for “cheap” companies.
What Is A Value Trap?
According to Investopedia, a value trap is “…a stock that appears to be cheap because the stock has been trading at low valuation metrics such as multiples of earnings, cash flow or book value for an extended time period”1.
In other words, a company ...
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