Don't Take a Stock's Value at Face Value -- Use These Metrics Instead
Unless your portfolio consists only of energy companies, if you look at the 2022 performance of your stocks, the majority are likely down. Since the start of the year, the three major indexes -- S&P 500, Nasdaq Composite, and Dow Jones -- are down over 23%, 32%, and 16%, respectively (as of October 20).
On one end, bear markets and down periods can present great opportunities for those with time on their side. On the other end, the drop in prices can present a lot of value traps. A value trap is a stock trading at a low price that looks like a good deal but is a bad investment. That's why it's important not to take a stock's value at face value. Instead, use these metrics.
As an investor, the sooner you learn that cheap isn't always a good value, the better. A $500 stock could be undervalued, and a $5 stock overpriced. For example, if a penny stock were priced at $5, it would be considered absurdly high by almost all standards. However, if a stock like Booking Holdings were priced at $500 instead of its current price around $1,775, it might be the deal of the century right now.
Source Fool.com
