From a nice little article on Seeking Alpha:
A clever commenter on our last article called the company in question, BofI Holding, a “reverse value-trap,” and that evocative description has stuck with us. The business looks solid on all fundamental fronts with excellent growth and a scalable model. Yet a majority of articles on Seeking Alpha recommend shorting it, implying that despite good earnings, the company seems untrustworthy, and there’s no value here (i.e., a “value trap”).
And so, before buying a small stake in the company, I did a personal litmus test: I asked a friend if he would invest in a company called “Bank of Internet.” He laughed. It sounds like a bad translation - a Chinese shell company. And besides, there is nothing exciting, revolutionary, or sexy about a bank. If anything, banks are too confusing, and certainly not worthy of our trust.
Herein lies the opportunity. BOFI doesn’t make headlines. BOFI doesn’t inspire loyalty or belief in its “mission.” BOFI doesn’t get mentioned at cocktail parties. The only investor who might take an interest in the company will be the one who has done a reasonable amount of personal investigation and thinks that BOFI - a “fundamentally undervalued” stock - fits into his boring portfolio.
And there will be no trumpets, regalia, or confetti, but he doesn’t really care about that.
The “So What?”
A lot of companies fit this “reverse value-trap” profile. In niche, too-technical, too-confusing, or poorly marketed stocks, there will always be opportunities for favorable risk-reward value plays. Especially when a sector or industry is unpopular or under scrutiny for political or idealistic reasons (e.g., coal), opportunity abounds. Just don’t expect to always find these plays in the headlines.