How is that a value trap? And it was also growing fundamentally
These are very subjective statements and completely depend upon the investment thesis and duration.
I entered REC when the price was 100 and exited sometime back. So I think I can freely comment here.
Why I exited REC and haven’t came back yet
Every investment comes with the cost of going wrong. In certain PSUs, this cost is a very good reason to look somewhere else. And, it’s not like investors cannot make money somewhere else - even in the same sector.
Example: Power Mech Projects, has gone 4-6 times in the last 2-3 years. I entered and exited in between.
(In my experience, once people realize that one can still make money even after missing PSUs, the debate ends)
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What is a value trap: Stocks are value stocks UNTIL they become a trap. By looking at the present, one can always debate if xyz is a value or a trap. But it will be a never-ending debate - unless we look at the past.
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What past tells us: Whenever a government owns or controls a sector too much, the industry/business is often inconsistent, and thus, predicting the business outlook (topline, margin, capex, policies etc) is very difficult. This often is reflected via the low valuation multiples. Whether it was gov owned IRCTC or a sector such as gaming (say Delta Corp), what seemed value/growth overnight became a pain.
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Risks: There was a reason why xyz business had a low valuation a few years back. In a bull market, it’s easy to look beyond the past track record. But is it justified? Only investors can decide. In my experience, it gets difficult to decide whether to ADD or EXIT after a 10-15% correction. If the thesis goes wrong not only does one lose the earnings but also puts the invested capital at risk.
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Risk v/s reward: One can still generate returns while reducing one risk (i.e. cost of going wrong). There are examples other than Power Mech. An investor has to decide his own risk v/s reward appetite.
Disclaimer: Certain stocks may be in my portfolio and I may change my views anytime. Anything I say is NOT a BUY/SELL recommendation. Please do your own research and do not go by my words. I am not responsible for anyone’s gains or loss. Also, I have edited my answer a few times, because the words were coming right - as I wanted them.