Don't Be Fooled by These 3 Value Traps

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2023-03-28 13:10:00  • 4 mins

A wolf in sheeps clothing. Mediocre Easter chocolate in a shiny wrapper.

Sometimes things arent what they seem.

In stock investing, these are called value traps. Value traps are equities that appear to be inexpensive because they have low valuations. Under the surface, however, lie fundamental weaknesses that tell a different story. Their financials are less than stable.

Stocks with low price-to-earnings ratios sometimes earn them because the market recognizes underlying flaws. Combined with weak outlooks, such stocks trade where they are for good reason. Investors that buy into the allure of value traps can lose money if the stock declines further.

Approximately one out of every ten U.S. listed stocks have a positive P/E ratio less than 10. Some are justifiably cheap. Others, like these three stocks, are merely fools gold.

Why Is Thor Industries Stock Valuation Low?

Thor Industries, Inc. (NYSE: THO) is trading around 5x trailing earnings. It is less expensive than General Motors, Harley-Davidson and several other automakers. The recreational vehicle (RV) manufacturer also looks dirt cheap relative to its five-year average P/E of 12x. However, shift perception to fiscal 2023 earnings, Thor doesnt look so appealing.

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