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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 Board of Scania is of the firm view that the offer from MAN substantially undervalues Scania:
Currently trading at a P/E of 15x our 2006 EPS estimates, we believe significantly undervalues this high-quality company that provides one of the only ways to buy exposure to the fast-growing infertility field in the U.
E[acute accent]--Web Site Demonstrates How News Corp Offer Undervalues Intermix and the Growing Value of MySpace;
Commenting on the repurchase program Robert Talbot, President stated that, "The current market price of the stock substantially undervalues the Company.
The offer on the table significantly undervalues US Realty's contribution to the combined company at the same time that shareholders will be giving up substantial ownership rights," said Nick Weiner, a research analyst with HERE.