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How do you identify stocks that are undervalued?

• mesozoic 9y ago
  Read The Intelligent Investor
• muzani 9y ago
  Fundamentals. This is actually quite hard because it's relative. I've seen 'experts' do analyses like "Facebook was valued at $100 per user, this company is better than Facebook, therefore this company should be valued at $300 per user." It sometimes helps to go at it from an untrained perspective and make your own estimates. Look at assets, cash flow, cash in the bank. Opportunities, market size. Yes, this does take a lot of work, but you are literally being an investor here. It's good to be an expert in the field you're investing in. Draw a line. Find out where the spikes in the data are coming from: are they catalysts or just hype? I've seen some odd things, like when a certain party wins the election, shares of the prime minister's relatives go up. The line would rarely go "hockey stick" when these things happen. Often they're more of an S-Curve. If they're undervalued, it's just correcting, meaning that the real line is a lot steeper. Don't look too closely at profits. A lot of companies reinvest in themselves, partly to minimize tax. Companies that offer high dividends are often committed to slow growth.