In this video, Motley Fool analyst Austin Smith talks about the dangers of falling into a value trap. In his case, it's buying shares of Supervalu (NYSE:SVU), with a hope for the company's turnaround. This can be the same for other companies, like Best Buy Co. (NYSE:BBY), hhgregg (OTC:HGGGQ), Barnes & Noble (NYSE:BKS), and, to some degree, J.C. Penney Company (NYSE:JCP) and Sears (OTC:SHLDQ).
By seeing the cheap stock price, he overlooked the fact that the company had too much debt, and they were operating in a deteriorating environment because of competition (Walmart and Walgreen). Instead, he stacked up on "ifs" -- if they pay down their debt, and if they achieve these sorts of returns, etc., they could turn around in a big way.
When you start stacking up a chain of "if" theses, it's a warning flag for you, and not a great way for long-term investment.