Jakarta, CNBC Indonesia – Valuation is of course used to determine the fair price value of a share. The hope is that you can get shares at a cheap price and sell them when their fair value is high, however valuation certainly cannot be relied on as the only analysis.
Share prices in the market are certainly influenced by supply and demand. Be aware that not all shares with low or cheap valuations are really worth buying for investment.
It is possible that a stock has a lower price to earnings ratio (P/E Ratio) and price to book value (PBV) than its competitors, but unfortunately the low ratio is because investors are not interested in collecting these shares because their business future is less promising.
The mistake of buying shares at low valuations can actually result in losses in the future. And this is often called a value trap.
The company's business is included in the sunset industry category
If sunrise industry is used to describe a growing business, sunset is the opposite. The term sunset industry is often applied to companies that were previously successful but whose performance has now begun to fade.
Companies that enter the sunset industry also experience difficulties in developing. Even though they appear to be experiencing growth, their growth value is far below average.
It's natural that investors don't want to invest their money in companies like this. And this also has an impact on share price movements.
Not a market leader in the industry
One effective way to evaluate a stock is to compare it to competing companies in the same industry.
Cheap prices can also reflect that they are less competitive in the eyes of investors. Without significant competitiveness, it is very likely that companies like this will increasingly lose their competition in the business world.
Bad fundamentals
Even though the valuation is cheap, if the company's fundamentals are bad and the company continues to lose money, it is not surprising that investors will stay away.
In stock investment, investors will buy a business. When a company loses money, there will definitely be no dividends distributed to shareholders.
Not only that, the company's future is becoming increasingly bleak.
In order not to avoid cheap stocks, it is very important to upgrade your knowledge about stock investment.
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