Back on March 1, 2013, I made a value trap post about Atlantic Power Corporation (AT). In this post, I mentioned that the stock had a very juicy dividend, and a very good Debt to Equity ratio and good P/B. But the stock also had negative earnings in the past several years, and so I deemed the stock as a value trap.
I warned investors to stay away from the stock because buying it would be like trying to catch a falling knife. Just because the stock was attractive on several valuations didn’t make it a good buy. The results I’m about to show prove how important it is to look at all 7 categories from my 7 Steps to Understanding the Stock Market guide.
On March 1, 2013, the stock AT traded at $7.12.
The stock was falling, and looked like an opportunity at first. But like I said in the post, the negative earnings year over year warn us of a value trap.
Today, the stock AT trades at $3.95.
While this doesn’t mean that the stock can’t go back up sometime in the future, an investor who bought in March would really be feeling the pain right now. The point of doing fundamental analysis is to avoid big losses like this one.
-The results to date are a loss of -44.5%.
–$10,000 in AT on March 1st would only be $5,550 today.
Looked Good, But Actually a Value Trap
A prudent investor would’ve identified this value play as an actual value trap. Instead of taking unnecessary risk, a prudent investor would wait for the company to improve its earnings situation before considering an investment in the company.
It’s important to look at results like these. While I’m not claiming that all my picks are always right or that I can predict the future, I do have confidence in everything I teach. I hope this post helps you to understand why looking at things like negative earnings and earnings growth is important.
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**All Rights Reserved. Investing for Beginners 2013**
**Results: Value Trap Update on Atlantic Power Corp (AT)**
**Link for the magnifying glass photo found: Photo Attribution**