Undervalued

What does 'Undervalued' mean

Undervalued is 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. Large-Value Stock

    A type of large-cap stock investment where the intrinsic value ...
  2. Value Investing

    The strategy of selecting stocks that trade for less than their ...
  3. Intrinsic Value

    Intrinsic value is the actual value of a company or an asset ...
  4. Relative Value

    A method of determining an asset's value that takes into account ...
  5. Time Value

    The portion of an option's premium that is attributable to the ...
  6. Margin Of Safety

    A principle of investing in which an investor only purchases ...
Related Articles
  1. Investing Basics

    What Is The Intrinsic Value Of A Stock?

    Intrinsic value can be subjective and difficult to estimate. It’s a perception of a security’s value that factors tangible and intangible factors.
  2. Investing Basics

    What Is The Intrinsic Value Of A Stock?

    Intrinsic value reduces the subjective perception of a stock's value by analyzing its fundamentals.
  3. Options & Futures

    Stock-Picking Strategies: Value Investing

    Value investing is one of the best known stock-picking methods. In the 1930s, Benjamin Graham and David Dodd, finance professors at Columbia University, laid out what many consider to be the ...
  4. Options & Futures

    Options Pricing: Intrinsic Value And Time Value

    The two components of an option premium are the intrinsic value and the time value. The intrinsic value is the difference between the underlying's price and the strike price. Specifically, the ...
  5. Investing

    Discounted Cash Flow (DCF)

    Discover how investors can use this valuation method to determine the intrinsic value of a stock.
  6. Saving and Spending

    How to Invest Your Excess Cash in Undervalued Securities

    Learn how even small investors can shoot for substantial capital gains by starting to invest their excess cash in undervalued securities.
  7. Value Definitions and Applications

    Defining Value Investors are concerned with the value of their investment. They all want to make sure that the product they buy or sell is worth the value (price) they pay or receive. Intrinsic ...
  8. Fundamental Analysis

    Value Investing Strategies in a Volatile Market

    Volatile markets are a scary time for uneducated investors, but value investors use volatile periods as an opportunity to buy stocks at a discount.
  9. Value Traders

    Value trading is based on the ideas that Ben Graham and David Dodd started teaching at Columbia Business School in 1928. There are many interpretations of what value trading is, but the basic ...
  10. Active Trading Fundamentals

    How to Identify Mispriced Stocks

    Find out how to identify mispriced stocks. Learn about intrinsic and relative valuation methods based on fundamentals, and technical analysis.
RELATED FAQS
  1. Do you always have to consider intrinsic value when purchasing a stock? Why or why ...

    Take a deeper look at why value investors consider a stock's intrinsic value an important consideration before picking a ... Read Answer >>
  2. What is the difference between intrinsic value and current market value?

    Discover the differences between intrinsic and market values, what makes the former difficult to determine and how investor ... Read Answer >>
  3. What are some common traits of undervalued stocks?

    There are a few basic factors found in companies that are worth more than their current stock price. Read Answer >>
  4. What role does intrinsic value play in put options?

    See why the concept of intrinsic value is so important in options trading and how investors use it to evaluate the worth ... Read Answer >>
  5. If the intrinsic value of a stock is significantly lower than the market price, should ...

    Discover how the intrinsic value and market price of a stock are related and why a stock that appears overvalued may still ... Read Answer >>
  6. What role does intrinsic value play in call options?

    Understand why the concept of intrinsic value is important for options traders and how they can use it to estimate what a ... Read Answer >>
Hot Definitions
  1. Law Of Demand

    A microeconomic law that states that, all other factors being equal, as the price of a good or service increases, consumer ...
  2. Cost Of Debt

    The effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; ...
  3. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  4. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  5. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  6. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
Trading Center