what is a value trap 
a value trap is a stock or other investment that appears attractively priced because it has been trading at low valuation metrics such as price to earnings p e price to cash flow p cf or price to book value p b for an extended period a value trap persuades investors because the trade appears inexpensive relative to historical valuation multiples of the stock industry peers or the prevailing market multiple a value trap can drop further after an investor buys into the company low multiplesa company trading at low earnings cash flow or book value multiples for an extended period is usually experiencing instability even if the price of the stock appears attractive the company data and fundamentals do not meet investor criteria a company that does not reinvest profits with material improvements research development processes or contain costs could signal a value trap if there are many leadership changes this could be a warning for investors a company with previously rising profits and a healthy share price can fall into a situation where it cannot generate revenue and grow to avoid value traps investors should determine the cause of the current low stock price and whether the reasons are temporary or permanent identifying value trapsidentifying value traps can be tricky but a careful fundamental analysis of the stock can reveal what is a trap and what is a good investment opportunity here are some examples of possible value traps 