Value traps: When good P/E doesn’t mean good investment

P/E ((stock) price per earnings) is an important tool for investors. Still, there are cases where having a strong P/E doesn't necessarily mean it's a good investment. These are sometimes referred to as Value Traps, which is a bit of a buzzword but we might as well.

Here are some examples of factors that can 'ruin' the investment prospects of a healthy P/E:
-The earnings are misleading: companies can shuffle around their numbers to make it appear better for short term gain.
-The company is losing market share. It might be doing alright this year, but earnings are likely to shrink in the future, making it a bad investment.
-The company is in a shrinking sector. Very similar to declining market share, but instead of a smaller piece of the pie, the entire pie is shrinking.
-Unsustainable stakeholder relations. A company that overworks its employees, burns bridges with its suppliers, or otherwise mismanages a company in order for short term gain will not be a good investment.
-Peak earnings. The company itself is fine, but this year's earnings are because of a peak in the cycle. If your company is in a cyclical industry, it might make more sense to use the average earnings per cycle in your price to earnings analysis, rather than the current earnings.
-Strategy and innovation. A failure to adapt to the changing needs of the market can turn a good value company into a bad future investment. Classic blockbuster tale.
-External interference. When new laws get passed, these might affect the industry you're investing in. Other sources of interference could be activist groups, unions, the media, rival corporations with large sway on the market, etc.

Basically what I'm trying to say is this: Sometimes the current earnings are not indicative of future earnings, and as an investor you should be wary about this. A strong P/E is only a good indicator if the earnings are grounded and sustainable.

Disclaimer: I am not qualified to give advice of any kind. Please think for yourself and take everything with a grain of salt.