Copyright © 2012, Campbell R. Harvey. All Rights Reserved.
A security with a share price lower than its asset value and/or earnings potential. It can be difficult to determine whether or not a security is undervalued, but a low price-earnings ratio is one way to estimate it. A price-earnings ratio below 1 indicates that the security's price is less than the company's earnings per share, which may mean that the company is undervalued. Undervalued companies are often target companies in hostile takeovers. See also: Undervalued, Overvalued.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved