A stock is undervalued when it is trading at a price below its true value, also known as intrinsic value. The intrinsic value is the true value of a stock, its actual worth, irrespective of what investors and speculators are willing to pay for it.
Sometimes, due to external factors (like negative market sentiments), the price of a stock deviates from its intrinsic value (true value). It can trade at a discount to its peers or the industry average. Usually, this is a good time to buy the stock, as in some cases, the pessimism is overblown, and there you might make good returns.
However, other times this pessimism is warranted, and it could be due to various reasons. Maybe, the company has succumbed to tough competition or is a victim of rapid technological change or is run by an incompetent and unethical set of managers.
Whatever the reason might be, such companies that fail to perform despite their inexpensive valuations eventually become value traps.
The key to sidestep this is by doing your research. Look for fundamentally strong companies available at a discount to their true values.
There are several methods to find the true value of the stock. Valuations tools like the commonly used Price to Earnings and Price to Book can help you find if the stock is trading at a discount to its historical values or peers.
You can either do this or find the most undervalued stocks on Equitymaster's powerful stock screener.
Nov 19, 2024
These bluechip stocks have fallen recently. They are likely candidates for a recovery in 2025.
Nov 18, 2024
The recent QIP and the massive investment by Singhania are expected to bolster this textile company's capital base and support its growth initiatives.
Nov 14, 2024
As the bears continue to cast a shadow over Dalal Street, here are five smallcap stocks trading at notable discounts.
Nov 12, 2024
Investing in stocks below book value can be appealing. Take a look at these five...
Nov 3, 2024
Is this Indian stock's 40% drop a golden opportunity?
Oct 25, 2024
Despite all the advantages, holding companies carry some risks for public shareholders.
Oct 3, 2024
Amid the excitement around artificial intelligence, quantum computing is quietly emerging as a transformative technology. Here are the top 5 quantum computing stocks in India.
Sep 26, 2024
Discover the top five undervalued small-cap stocks poised for significant growth in 2025.
Sep 14, 2024
As India accelerates its transition to sustainable energy, the renewable energy market is set for growth. Here are the top stocks to watch.
Aug 25, 2024
This Tata group stock has delivered a 1,000% return to its shareholders in the last 3 years.
Nov 18, 2024
Here are 10 high book value stocks to watch out.
Nov 16, 2024
These midcaps are currently sitting beautifully between the stable but slow growing large-caps and the high return but risky small-caps.
Nov 13, 2024
These smallcaps are trading at a considerable markdown relative to their actual book values. Take a look...
Nov 4, 2024
A high book value suggests that the company's assets are valued favourably compared to its stock price, which might indicate a bargain.
Nov 1, 2024
Swiggy's Rs 113 billion IPO is almost here. Here's a closer look at whether it's worth considering.
Oct 4, 2024
We found few stocks where valuations are still relatively reasonable. Find out...
Sep 28, 2024
With India's software exports booming, IT stocks are poised for growth. Here are the top picks to watch out for.
Sep 22, 2024
As India strives to capture 10% of the global space economy by 2030, these spacetech stocks are set for growth. Here are the top stocks to watch.
Aug 29, 2024
These microcaps are trading significantly lower from their book values and their 5-year average historical valuations.
Aug 12, 2024
Despite the defence sector's strong performance in recent times, these five stocks have faced notable corrections. Here's why.