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Strategies & Market Trends : Value Investing
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To: NikhilJog who wrote (49707)10/9/2012 4:08:02 PM
From: Paul Senior1 Recommendation  Read Replies (2) of 78702
 
well are you sure its not a value trap? that was my question. firms can have low P/E and they can keep having that low P/E for 4 years.


If you're looking at continued low p/e and saying therefore it's a value trap --- that's not quite correct, imo. If something has a low p/e year after year, that doesn't necessarily mean it's a value trap. For me, I search out such companies. I'm interested as long as the earnings don't seem like they will drop in those future years. Because in those future years, if the earnings do fall, the price (p) will drop (hurting me), and yet the p/e might still stay low. (When I've seen huge drops in earnings though, the p/e has often risen actually. Denominator "e" becomes so much smaller it pushes up the ratio. Even though "p" falls too.)

That seems to be the point with WDC, others. There may be a sea change with their businesses, and so people believe earnings will indeed fall -- maybe jeopardizing the company's business or existence. If anywhere near true, the stock(s) could be value trap(s) if bought only on today's low p/e.

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