Over the years, History has proven that the purchase of cheap stocks gives better returns than the investment of expensive shares over an extended period. However, to obtain profits from cheap stocks, you have to ensure that the cheap stock is not a permanent affair. If the cheap stock remains cheap, then the stock will not have any returns. Your money will end up being stuck and sinking slowly in value. On the other hand, a value trap is like quicksand. First, your money ends up being stuck then it slowly begins to sink in value.
Therefore, how does one know if a stock is cheap or a value trap? The first thing to note is that the expensive or cheap nature of any share depends on the stock’s valuation and not on the stock’s valuation. For instance, a stock which trades for $1 is expensive if it has a high trade valuation while a stock that sells for $100 is cheap if it has a low trade valuation. You can measure a stock’s valuation using its price-to-earnings-ratio and its price-to-book value. The things to involve in such calculations include the overall fundamentals of a company. For instance, what the company earns, how much the company sells, how much they have in debt and their measure against the stock price.
For more information on the value trap or cheap stocks, you can get it on Stanberry Research. Stanberry research is an American publishing company that is privately owned. It specializes in investment research. Their site is informational with regular monthly and bi-monthly newsletters, which are written by various financial editors. Stanberry research covers the following topics healthcare, biotechnology, natural resource, oil, power, and mining investment companies. Their articles also feature value, alternative investment, and corporate bond. For people interested in investment articles, the Stanberry research newsletters are a perfect guide. With subscribers in over a hundred countries, their investment information is something people can use to invest. Ever since they began in 1999, their advice has helped thousands of people achieve their investment dreams.