Undervalued Shares

Undervalued Shares: Undervalued shares are shares and stocks who’s perceived or fundamental value, usually based on future capital flows, is higher than the current market price of the share. For example, if a share is selling for 50 INR, but has a potential to sell for say 100 INR, then that share is said to be undervalued.

Different scenarios, both internal and external may cause a stock to be undervalued. Internal factors would include financial scandals or mismanagement by the management of the organization’s affairs while external factors would include the current geo-political or economical situation of the region.

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Identifying an undervalued stock can be tricky. Various factors to be considered would include the past financial performance of the company, the current credit rating of the company, the current management of the organization, etc. Investors should also be able to wait out a time frame for the stock’s valuation to go up. A popular indicator of undervalued shares is the PE (Price earning) ratio, with undervalued stocks usually having a low PE.

Edited and Updated 08th March 2014

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