Is This Downtrodden Stock a Value Trap?
One of the great pleasures of investing is the excitement that comes with the clandestine knowledge of finding an undiscovered bargain. That's doubly true when the bargain is (somehow) for an already-discovered and high-profile business, like BioNTech (NASDAQ: BNTX). Still, the stock's decline of more than 40% in the last year while selling a globally in-demand coronavirus vaccine should tip investors off that not everything is as it appears.
But, many stocks are declining at the moment, and stocks often fall without any direct underlying development that would harm a company's ability to compete. Is BioNTech a value trap landmine waiting for value-hunters, or is the market getting this one wrong? Let's start to answer this question by defining the concept of a value trap so that we're on the same page.
In a nutshell, value traps are stocks that appear to be priced at a bargain relative to their current financial performance but are actually just declining businesses that the market is correctly appraising at a low value. Falling for a value trap often means parking your capital somewhere it will decline over time, as the stock becomes a better and better "bargain" the lower its price gets, sometimes in the face of rising revenue or earnings. For new value investors, there's nothing more frustrating, and avoiding such pitfalls is key.
Source Fool.com
