What is an example of an undervalued stock?
An undervalued stock is defined as a stock that is selling at a price significantly below what is assumed to be its intrinsic value. For example, if a stock is selling for $50, but it is worth $100 based on predictable future cash flows, then it is an undervalued stock.
Undervalued is a financial term referring to a security or other type of investment that is selling in the market for a price presumed to be below the investment's true intrinsic value. The intrinsic value of a company is the present value of the free cash flows expected to be made by the company.
if something is undervalued, it is considered to be less valuable or important than it really is: The water companies have a lot of undervalued assets. an undervalued business/company He specialises in making investments in small, undervalued companies.
Price-to-book ratio (P/B)
To calculate it, divide the market price per share by the book value per share. A stock could be undervalued if the P/B ratio is lower than 1. P/B ratio example: ABC's shares are selling for $50 a share, and its book value is $70, which means the P/B ratio is 0.71 ($50/$70).
Company | Face Value (in INR) | Price-to-Earnings (P/E) Ratio |
---|---|---|
Jindal Drilling Industries | 5 | 24.10 |
Oil India | 10 | 4.59 |
REC Ltd | 10 | 6.32 |
Meghmani Finechem Ltd | 10 | 14.63 |
The Relative Value of AMZN stock (131.7 USD) is 25% less than its price (174.63 USD). AMZN has upside potential of 23% compared to the average analyst price target. AMZN has positive Free Cash Flow for the last twelve months.
Investors with a long-term investment horizon may find undervalued stocks appealing, as they have the patience to wait for the market to recognise the stock's true value. By holding undervalued stocks over the long term, investors can benefit from potential price appreciation as the market corrects its mispricing.
Example of an overvalued stock
As a result, its stock price has soared over the past year, reaching INR 2000 per share. However, when you analyze its financials, you notice that its earnings have not grown proportionally, and the company's P/E ratio is now at 50, well above the industry average of 20.
Advantages of Undervalued Stock
It presents an opportunity to purchase shares at low prices from well-established or promising companies. These stocks also feature low risk due to the fact that such undervaluation is cyclical and the company has the potential to attain its intrinsic value.
S.No. | Company | Industry/Sector |
---|---|---|
1. | Tata Consultancy Services Ltd | IT - Software |
2. | Infosys Ltd | IT - Software |
3. | Hindustan Unilever Ltd | FMCG |
4. | Reliance Industries Ltd | Refineries |
Will a stock go up if it is undervalued?
What happens when a stock is undervalued? Ideally, it's more likely to experience future growth, which could mean capital gains for investors depending on their individual cost basis (or buying price). When a reliable analyst suggests a stock may be undervalued, their opinion could be worth listening to.
Generally, undervalued shares are favored over overvalued ones, as the investors buy low and sell high. If the company is performing well, it can give promising returns. Buying an overvalued share doesn't have this advantage, as the price returns to its intrinsic value, which is lower.
Fair Value Estimate for Apple
With its 2-star rating, we believe Apple's stock is overvalued compared with our long-term fair value estimate of $160 per share.
S.No. | Name | ROCE % |
---|---|---|
1. | Cons. Finvest | 65.96 |
2. | West Coast Paper | 52.89 |
3. | Andhra Paper | 51.95 |
4. | C P C L | 45.54 |
- Intuit Inc. (NASDAQ:INTU) Number of Q4 2023 Hedge Fund Shareholders: 75. ...
- Tesla, Inc. (NASDAQ:TSLA) ...
- Booking Holdings Inc. (NASDAQ:BKNG) ...
- Netflix, Inc. (NASDAQ:NFLX) ...
- Broadcom Inc. (NASDAQ:AVGO) ...
- Micron Technology, Inc. (NASDAQ:MU) ...
- Adobe Inc. (NASDAQ:ADBE) ...
- Apple Inc. (NASDAQ:AAPL)
Over the past twelve months the share price is up 1.19%. Based on the DCF valuation, the stock is overvalued. The DCF value of $112.24 per share is lower than the current market price of $167.20. The Margin of Safety is -48.97%.
Analysts at Coin Price Forecast do offer a 2034 projection for Amazon stock, estimating a 10-year price increase of 276%, to $672 per share.
Walmart has a conensus rating of Strong Buy which is based on 25 buy ratings, 3 hold ratings and 0 sell ratings. The average price target for Walmart is $65.73. This is based on 28 Wall Streets Analysts 12-month price targets, issued in the past 3 months.
Costco has a conensus rating of Strong Buy which is based on 19 buy ratings, 6 hold ratings and 0 sell ratings. The average price target for Costco is $783.04. This is based on 25 Wall Streets Analysts 12-month price targets, issued in the past 3 months.
Investors often seek out undervalued stocks as a strategy to capitalize on potential opportunities in the market. These stocks typically trade at prices lower than their intrinsic value, presenting a buying opportunity for those who believe the market has overlooked their true worth.
What PE ratio is good?
Average PE of Nifty in the last 20 years was around 20. * So PEs below 20 may provide good investment opportunities; lower the PE below 20, more attractive the investment potential.
Key Points. Stock valuations can be subjective, but shares of Costco appear to be objectively overvalued. The retail giant has a great business model that has delighted both customers and shareholders. But BJ's Wholesale Club offers investors the same model -- and at a more reasonable valuation.
The so-called Buffett indicator compares the total market capitalization (share prices times outstanding shares) of all U.S. stocks with the quarterly output of the U.S. economy.
A company is considered overvalued if it trades at a rate that is unjustifiably and significantly in excess of its peers. Overvalued stocks are sought by investors looking to short positions and capitalize on anticipated price declines.
Symbol | Name | % Change |
---|---|---|
MSCI | MSCI Inc. | -14.24% |
LKQ | LKQ Corporation | -12.75% |
DJTWW | Trump Media & Technology Group Corp. | -12.08% |
CLF | Cleveland-Cliffs Inc. | -9.88% |