As the Sensex has crossed the 66,000-level, it is quite possible for investors to fall into a value trap, a situation in which an investment appears to be undervalued by using traditional valuation metrics.
A stock that appears to be undervalued based on specific financial ratios like price-to-earnings (P/E) or price-to-book ratio or higher dividend yield but continues to decline or remains stagnant for an extended period can mean a value trap. In other words, investors get trapped in a stock that appears to be cheap but fails to realise its perceived value.
