All about investment

Melanie M.

If you think a low PER means 'cheap' and a high one means 'expensive', be careful. It ain't always so.

Hands up. Have you ever made a list of all stocks trading on low PERs from the newspaper? Don't be shy, because many of us have. From the beginning of our investing lives, we're taught that a low PER means a stock is cheap, while a high PER means it's expensive. Indeed, we get regular queries from subscribers which indicate that this is a deeply held general belief.

But there are many areas where deceptively low PERs can spell trouble for unwary investors. In this Investor's College we'll look at several sharemarket sectors that are particularly prone to these 'value traps'. If you're looking to brush up on what a PER is, take a look at the Investor's College articles from issues 124 to 127 of The Intelligent Investor. They're available here and make for a good refresher course.

Accounting standards should ensure a company's profit reflects economic reality, right? Well, in the case of infrastructure funds, such as airport investor Macquarie Airports (MAp), nothing could be further from the truth. Under Australian accounting standard AASB 139, MAp elects to revalue its airport investments every year to fair value, taking the change to the income statement. But if you can keep your eyes from glazing over, we'll see that these apparently arcane accounting shenanigans can make for some extraordinary results.

Read more of Watch Out for Low-PER Value Traps and information on investing in share at The Intelligent Investor.

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