Value traps are stocks that have ideal valuation multiples but whose underlying business is decaying. There are three stocks value investors should avoid.
GameStop (NYSE:GME) reported hardware sales falling 46% in the third quarter. Consumers are waiting for the Xbox and PlayStation refresh and are not buying current models. New software sales fell 33%. GameStop is getting marginalized by online gaming sales. EA and Steam both sell games direct to consumers online.
ViacomCBS (NASDAQ:VIAC) is the result of a merger between Viacom and CBS. Putting two losing content companies with no strong online streaming play will not create value for investors. Its only play is unoriginal: cutting costs through layoffs.
Regardless of the headcount reduction, the near-term prospects for the merged firm are poor. Buy Netflix (NASDAQ:NFLX), AT&T (NYSE:T), or Disney (NYSE:DIS) stock instead.
Dropbox (NASDAQ:DBX) is losing its focus. The file-sharing supplier is getting into collaboration. But Microsoft (NASDAQ:MSFT) and Google’s Google Docs offer a better, less expensive solution. Dropbox said the resignation of its Chief Customer Officer will cost another $500,000.
This is hardly shareholder-friendly. DBX stock is expensive even after touching new lows recently. At a forward P/E of almost 30 times, the stock is not done correcting. Any bounce should prove short-lived.
Patient investors should wait for DBX stock to fall to $15.50 at the very least before buying.