Undervalued is used in context of a stock whose market price is widely perceived to be below its intrinsic value. As the fundamentals of a stock (earnings, dividends, etc.) change, stocks are continuously reviewed in order to determine if the stock price is relatively undervalued or overvalued.
An undervalued stock is also a perception in the mind of investors and there are always two schools of thought in stock market, one will consider a stock undervalued and other will consider it as overvalued. Normally, techniques such as ratio analysis and financial models are used to determine undervalued stocks.
Related Terms: Value Investing – Value Stocks – Dividend Yield – Earnings Yield