(6) Excessive Dividend Yield
It is one of the most amazing & tricky ways to identify and avoid value traps in stocks. Value investors often look to buy possible value stocks on the basis of dividend yield.
Several stocks do maintain dividend paying strategy even in a downturn. However, others may slash or cancel them altogether just to stay in business in tough times.
You should be cautious in picking stocks when dividend yield hits double-digit figures. This is necessary condition to avoid being trapped in fake value stocks.
(7) Cheaper P/E Ratio
It is one of the most technical & tricky ways to identify and avoid value traps in stocks. A cheaper P/E ratio is often considered to be a good means to identify possible bargains.
But, don’t get excited by a dirty cheap P/E ratio obtained from a financial website as they are not updating P/E ratio on a regular basis.
Value investors should look for forward P/E ratio when analyzing true cheapness of a stock. You can avoid value traps by showing patience in selecting stocks in share market.
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