If a company is cheap based on some valuation metric, check it historically. Has it always been cheap? Is there a reason to believe that is will rerate? Is there something different about the business today to warrant a higher multiple than the market has assigned previously?
Be very careful on anchoring to competitor or industry valuations. Any time a pitch starts with, “it’s two most direct competitors sell for a multiple 2x higher” tread carefully. There is generally a business economics reason for this discrepancy. Also ask yourself, what now is different? Why should this business rerate? What will the market be seeing soon which it has not already seen in the past (and not paid for).
Be cautious of net/nets when that is the only thing being pitched. Something can stay cheap for a very long time. Even if it defies logic that something sells for less than cash on the books, it is occurring right now. The market is offering it to you to buy for less than cash. Why is that? Why will that change? What will force the market’s hand to rerate?
On net/nets even if your logic is correct, the holding time may be so long the return was not worth it. You also must play these nearly perfectly because you are not buying a growing business. You are buying something cheap and waiting for someone to pay you more for it. That is similar to speculation, just with a “better” downside protection.
Be weary when a pitch begins with “you can buy the company today for same price as x years ago, but now it has X, Y, and Z”. This is anchoring bias at its finest and assumes that the price/multiple from years ago was correct and that the market will value the business similarly in the present.