A value trap is a stock that appears undervalued based on valuation metrics such as the price-to-earnings (P/E) ratio or price-to-book (P/B) ratio, but its low valuation reflects underlying business problems rather than a temporary market mispricing. Weak earnings, declining growth prospects, high debt, or structural challenges may prevent the stock from recovering, making it appear attractive while offering limited return potential. Investors should analyse a company's fundamentals carefully before investing in undervalued stocks.
