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The state in which a security's price is lower than it ought to be. A stock may be undervalued, for example, when its earnings and financial outlook are both strong, but its share price is still comparatively low. A number of factors may cause undervaluation, including lack of investor knowledge about the company, which, in turn, leads to low demand for its securities. Value investors seek out undervalued companies because they tend to provide solid returns for lower prices.


Any stock that trades at a lower price than the issuing company's reputation, earnings outlook, or financial situation would seem to merit is considered undervalued.

Undervaluation may occur when investors lose interest in a company, perhaps because it hasn't kept pace with its competitors, or if there are management problems.

Some investors concentrate on identifying and investing in undervalued stocks, sometimes called simply value stocks, drawn by their bargain prices and the expectation of recovery.

References in periodicals archive ?
The group's board has already rejected Mr Green's share offer for the retailer on the grounds that it under-values the chain.
Consistent with its fiduciary duties, and in consultation with its financial and legal advisors, the Board has reviewed the proposal and the substance of recent management conversations with Oracle, and concluded that the proposal significantly under-values BEA Systems.
ROBERT GRIFFITHS chooses Wilson Connolly (147 1 /2p), looking for internal changes to drive profits in a healthy building market JIM REED-DAUNTER stakes his chances on Aston Villa (122 1 /2p) on the grounds that 'The stock market totally under-values its asset value.
In the case of Ash & Lacy, Mr Vernon fears that investment institutions controlling 49 per cent of the shares will accept an offer that greatly under-values the company because they want to get out of the sector - a view that is already dragging down share prices throughout the engineering industry.