Definition
A value trap looks attractively priced based on traditional metrics but has deteriorating fundamentals that justify the low valuation. Common causes include secular decline, poor management, or disruption. The stock remains cheap or gets cheaper over time.
Example
A retailer trades at 6x P/E, seemingly cheap. But e-commerce disruption causes continuous sales decline, and the stock falls another 50% over two years despite the 'low' valuation.
FAQ
What is Value Trap?
A stock that appears cheap but continues to decline due to fundamental problems.
Why is Value Trap important?
Value Trap helps investors evaluate valuation and make more informed decisions.