What It Is:
Undervalued describes a security for which the P/E ratio, growth potential, health, etc. It is the opposite of .is considered too low for its fundamentals. Some metrics used to evaluate whether a security is undervalued are
How It Works/Example:
A stock may be undervalued due to a drop in demand driven primarily by investor perceptions. If a drop in price is not justified by the issuing company's actual financial status as manifest by its fundamentals and analyst growth projections, the security could be undervalued.
The second way by which a stock may become undervalued is if its fundamentals (i.e., , , growth projections, ) rise while its remains constant. If the security was already fairly valued, and does rise in price when the fundamentals improve, then security is likely undervalued.
Why It Matters:
An undervaluedis likely to experience a price rise and return to a level that better reflects its financial status and fundamentals. Investors try to find 30-day annualized undervalued because they are considered a good buy.