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. Numerous popular books discuss undervalued stocks. Examples are
The Intelligent Investor by
Benjamin Graham, also known as "The Dean of Wall Street," and
The Warren Buffett Way by Robert Hagstrom.
The Intelligent Investor puts forth Graham's principles that are based on mathematical calculations such as the
price/earning ratio. He was less concerned with the qualitative aspects of a business such as the nature of a business and its management. Graham's ideas had a significant influence on the young
Warren Buffett, who later became a famous US billionaire.