When cheap is crap

In the stock market, a correction in the stock price augurs well for investors, especially when a stock trades at a low P/E, P/B or price-earnings-to-growth (PEG). While these three ratios prove to be effective in identifying fundamentally sound companies at throwaway prices, at times they lure investors to park their money in those companies that are trading at ultra-low valuations because of some serious issues, such as corporate-governance lapses, lower earnings quality, high debt or promoter pledging.

This article was originally published on August 08, 2019.