In life when something looks too good to be true, it usually is.
I believe the same applies to the share market. Every so often there will be shares changing hands at seemingly dirt cheap levels.
Whilst some of these may ultimately prove to be a bargain, more often than not they turn out being nothing but a value trap.
Three shares which look dirt cheap at present that I would suggest investors avoid are listed below:
Myer Holdings Ltd (ASX: MYR) shares are currently changing hands at just 8x trailing earnings. Whilst this is significantly lower than its historical average and the market and retail industry averages, I have grave fears for its department stores due to the impending arrival of Amazon in Australia. Department stores in the U.S. and U.K. have failed to compete with the retail behemoth, putting many on the brink of collapse. Unfortunately I see little reason to believe Myer is in a better position to deal with the threat.
Mayne Pharma Group Ltd (ASX: MYX) shares fell to a 52-week low of 74 cents on Wednesday, meaning its shares are now trading at just over 8x trailing earnings. But with the generic drugs market becoming increasingly price competitive, I am concerned that Mayne Pharma could be at risk of its earnings falling significantly in FY 2018. When conditions in the industry improve, the pharmaceutical company could be a great option for investors, but this could be some time away..
Vita Group Limited (ASX: VTG) shares have fallen a massive 61% this year, leaving the operator of Telstra Corporation Ltd (ASX: TLS) retail stores trading at under 5x trailing earnings. But with Telstra looking to slash Vita's remuneration and even cut back its store network, it is difficult to understand what its FY 2018 earnings will look like. Whilst it may end up being a bargain buy, I think the prudent thing to do is to wait until its full-year results have been announced for its FY 2018 guidance.
