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Undervalued Stocks in India

A stock is undervalued when it is trading at a price below its true value, also known as intrinsic value. The intrinsic value is the true value of a stock, its actual worth, irrespective of what investors and speculators are willing to pay for it.

Sometimes, due to external factors (like negative market sentiments), the price of a stock deviates from its intrinsic value (true value). It can trade at a discount to its peers or the industry average. Usually, this is a good time to buy the stock, as in some cases, the pessimism is overblown, and there you might make good returns.

However, other times this pessimism is warranted, and it could be due to various reasons. Maybe, the company has succumbed to tough competition or is a victim of rapid technological change or is run by an incompetent and unethical set of managers.

Whatever the reason might be, such companies that fail to perform despite their inexpensive valuations eventually become value traps.

The key to sidestep this is by doing your research. Look for fundamentally strong companies available at a discount to their true values.

There are several methods to find the true value of the stock. Valuations tools like the commonly used Price to Earnings and Price to Book can help you find if the stock is trading at a discount to its historical values or peers.

You can either do this or find the most undervalued stocks on Equitymaster's powerful stock screener.

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