Are these 3 ASX shares value traps or seriously undervalued?

Some investors might not agree but I think value investing is one of the best methods of investing in the share market.

Put simply, value investors look for companies that are trading at a discount to what they believe the shares are really worth.

These potential opportunities are created pretty frequently, especially when the market misprices securities based on short-term factors. This then plays right into the hands of value investors who usually have a longer term focus.

With those points in mind, here are three shares that may be on the radar of some value investors following some pretty hefty share price falls:

Qantas Airways Limited (ASX: QAN)

Qantas shares have lost about one-third of their value since the start of the year and, according to CommSec, are trading on a forecast FY16 price-to-earnings (P/E) ratio of just 5.3. Based on that metric alone, there is no doubt Qantas is cheap!

The issue arises when investors look further past the current year. Qantas has enjoyed a number of tailwinds that have really helped to boost profits recently with the most important being the collapse of the oil price.

Those investors who believe the oil price could collapse again may be tempted to buy shares at the moment, although I would suspect most long term investors would understand that the airline industry is notorious for delivering poor returns.

Flight Centre Travel Group Ltd (ASX: FLT)

Flight Centre shares are currently trading around the $30 level and this has previously been a strong level of support for the shares.

Whether the shares can hold at these levels will be an important psychological barrier for many investors, although I suspect this could be tested if Flight Centre disappoints the market again.

The issues facing the company are well known, but I am not completely convinced the worst of its problems are over just yet purely on the fact that one of its main competitors in Webjet Limited (ASX: WEB) has recently reported strong growth.

As a result, I would be wary of investing right now, although the current valuation is somewhat compelling with the shares trading on a P/E ratio of around 12.5 and offering a dividend yield of 4.8%.

Ozforex Group Ltd (ASX: OFX)

OFX shares have been on a real roller-coaster ride over the past six or months or so following the failed takeover from Western Union and a subsequent profit downgrade.

The shares are now trading below their pre-takeover levels and around 40% lower from their 52-week high of $3.55.

The questions investors must still be asking is why did Western Union walk away and was the profit downgrade a result of management taking their eye off the ball during negotiations or from an underlying issue with the business?

Management have stated that they expect: “FY17 earnings to be up on FY16 with accelerating growth in FY18”, but I would remain cautious towards the stock as it still trades on lofty P/E ratio of 23.

This means OFX has very a small margin of error and I suspect will be treated even more harshly if it disappoints the market again.

Are you looking for shares that are truly undervalued? Why not consider these five dividend shares that are even better bets than the banks.

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Motley Fool contributor Christopher Georges 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.

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