Undervalued

DEFINITION of 'Undervalued'

A financial security or other type of investment that is selling for a price presumed to be below the investment's true intrinsic value. A undervalued stock can be evaluated by looking at the underlying company's financial statements and analyzing its fundamentals, such as cash flow, return on assets, profit retention and capital management, to determine said stock's intrinsic value.

BREAKING DOWN 'Undervalued'

Buying stocks when they are undervalued is a key component of mogul Warren Buffett's value investing strategy. Value investing is not foolproof, however. There is no guarantee as to when or whether a stock that appears undervalued will appreciate. There is also no single correct way to determine a stock's intrinsic value - it is basically an educated guessing game.

RELATED TERMS
  1. Value Investing

    The strategy of selecting stocks that trade for less than their ...
  2. Warren Buffett

    Known as "the Oracle of Omaha", Buffett is Chairman of Berkshire ...
  3. Fire Sale

    Selling goods or assets at heavily discounted prices. Fire sale ...
  4. Value Stock

    A stock that tends to trade at a lower price relative to it's ...
  5. Intrinsic Value

    Intrinsic value is the actual value of a company or an asset ...
  6. In The Penalty Box

    A phrase referring to a company whose stock has plummeted with ...
Related Articles
  1. Mutual Funds & ETFs

    The 3 Best Vanguard Funds for Value Investors in 2016

    Find out which of Vanguard's value funds are the best for building a solid core-satellite value investing strategy for your portfolio.
  2. Mutual Funds & ETFs

    4 J.P. Morgan Mutual Funds with Long Track Records

    Discover four mutual funds administered and managed by J.P. Morgan that invest in a wide variety of securities and have long track records.
  3. Stock Analysis

    McGraw Hill Financial: An Activist Investment Analysis (MHFI, MHE)

    Learn about the high-profile split between McGraw Hill Financial and McGraw Hill Education, and how a few activist investors changed the corporate landscape.
  4. Mutual Funds & ETFs

    PRF: PowerShares FTSE RAFI US 1000 ETF

    Find out about the PowerShares FTSE RAFI U.S. 1000 ETF, and explore detailed analysis of the fund that invests in undervalued stocks.
  5. Stock Analysis

    The 3 Best Buy-and-Hold Canadian Stocks

    Learn how the market is misreading Canadian stocks and how long-term buy-and-hold investors can stand to benefit from the misrepresentation.
  6. Stock Analysis

    The 3 Best Canadian Dividend Stocks (CNQ)

    Learn about the state of the Canadian stock market and three Canadian dividend-paying stocks that are worth taking a look at in late 2015.
  7. Markets

    PEG Ratio Nails Down Value Stocks

    Learn how this simple calculation can help you determine a stock's earnings potential.
  8. Active Trading

    Warren Buffett: How He Does It

    We look at the Sage of Omaha's methodology for evaluating value stocks.
  9. Forex Education

    Using The Price-To-Book Ratio To Evaluate Companies

    The P/B ratio can be an easy way to determine a company's value, but it isn't magic!
  10. Investing Basics

    Bouncing Back From A Portfolio Hit

    If your portfolio has been knocked out, we'll show you how to come back fighting.
RELATED FAQS
  1. Why would a company buyback its own shares?

    Stock buybacks refer to the repurchasing of shares of stock by the company that issued them. Essentially, a buyback occurs ... Read Full Answer >>
  2. What is "hammering"?

    "Hammering" is a situation where large sale orders are placed against a particular stock because investors believe that ... Read Full Answer >>
  3. What is finance?

    "Finance" is a broad term that describes two related activities: the study of how money is managed and the actual process ... Read Full Answer >>
  4. What is the formula for calculating EBITDA?

    When analyzing financial fitness, corporate accountants and investors alike closely examine a company's financial statements ... Read Full Answer >>
  5. How do I calculate the P/E ratio of a company?

    The price-earnings ratio (P/E ratio) is a valuation measure that compares the level of stock prices to the level of corporate ... Read Full Answer >>
  6. What is the difference between positive and normative economics?

    Positive economics is objective and fact based, while normative economics is subjective and value based. Positive economic ... Read Full Answer >>
Hot Definitions
  1. Super Bowl Indicator

    An indicator based on the belief that a Super Bowl win for a team from the old AFL (AFC division) foretells a decline in ...
  2. Flight To Quality

    The action of investors moving their capital away from riskier investments to the safest possible investment vehicles. This ...
  3. Discouraged Worker

    A person who is eligible for employment and is able to work, but is currently unemployed and has not attempted to find employment ...
  4. Ponzimonium

    After Bernard Madoff's $65 billion Ponzi scheme was revealed, many new (smaller-scale) Ponzi schemers became exposed. Ponzimonium ...
  5. Quarterly Earnings Report

    A quarterly filing made by public companies to report their performance. Included in earnings reports are items such as net ...
Trading Center