Are these 2 ASX shares bargains or losers?

Cabcharge Australia Limited (ASX:CAB) and Select Harvests Limited (ASX:SHV) trade on extremely low earnings multiples. Are they a bargain or best avoided?

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Sometimes shares get sold off to such a degree that they begin to look like bargains. But just because a share looks like a bargain, doesn't necessarily mean it is one.

The term "value trap" is often used to refer to this scenario. A value trap is loosely described as a share which appears to be cheap because it has been trading on a low earnings multiple for a reasonable amount of time.

Eventually the investor falls into the trap of buying the share, only to find the share price never ends up improving.

There are a number of shares on the ASX which have suffered severe declines and now trade at low multiples.

The question is whether they are bargains or potential value traps? Two are as follows:

Cabcharge Australia Limited (ASX: CAB)

Cabcharge is a prime example of a company that has been disrupted by modern technology. The emergence of ride-sharing app Uber in Australia has been a disaster for the company. It was only two years ago that there were calls for Cabcharge's near-monopoly on the industry to be ended.

Unsurprisingly Cabcharge's share price is down 31% in the last 12 months as shareholders head for the exits. This has left the shares trading at just 8x earnings, making them appear cheap. But I would avoid them at all costs.

It's not just Uber that shareholders have to worry about. Its Australian competitor goCatch has been growing at a strong rate and attracted investments from James Packer and SEEK Limited (ASX: SEK) co-founder Paul Bassat. This could spell big trouble for Cabcharge's long-term future.

Select Harvests Limited (ASX: SHV)

Priced at just 5x trailing earnings Select Harvests certainly appears to be very cheap even though its share price has risen by almost 10% this week.

The good performance of its share price cannot hide the fact that the company is having a shocking year. So far in 2016 its shareholders have endured a decline of 48%, making it one of the worst performers on the ASX.

This isn't entirely surprising, though. Select Harvests is a producer and distributor of almonds. Operating in such a niche market means the company will be subject to wild swings in almond prices.

Having been at record highs in 2014, almond prices came crashing down recently thanks to oversupply. As it could be some time before supply and demand finds its equilibrium I would suggest avoiding Select Harvests no matter how tempting it may appear to be.

Finally, with Select Harvests' shareholders nursing a loss of 48% this year, it makes this report about what you should do in the event of a market crash all the more important in my opinion.

Motley Fool contributor James Mickleboro has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »