Disruption causes prices to lead lagging fundamentals
The guest explained that value traps occur during technological disruption because forward-looking stock prices fall immediately while fundamental metrics like revenue lag, making disrupted companies look deceptively cheap.
The argument
Using historical examples like Blockbuster and Borders, the guest showed that sales per share often remained flat or even grew for years after the stock price began its terminal decline. This creates a window where traditional value screens identify these dying businesses as highly attractive.
Hear it yourself
"So over the past roughly twenty years, since this data began, they their forward PE ratio of software relative to PS and P has been at a 32% premium. Right? So that's been the historical average. And there have been some some fluctuations, so it kinda dipped a little bit in o nine and then went on kind of a secular bull run peaking in 2021. If you remember, that was kinda the COVID bubble where people were working from home and interest rates were at at all time lows and stimulus was coming to the market. So software stocks were kind of at their all time high valuations."
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