A company with a stock price lower than its asset value and/or earnings potential. It can be difficult to determine whether or not a company is undervalued, but a low price-earnings ratio is one way. A price-earnings ratio below 1 indicates that the stock 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.
A firm whose assets and potential earning power are not adequately reflected in its stock price. Although such firms are more likely to be subject to takeover attempts than others, determining whether a particular firm is actually undervalued can be quite difficult. See also asset value.