How to Pick Under valued Stocks?
Price to earnings ratio enables you to find out how much you have to invest in order to get one rupee of the company's earnings in return. It tells you whether the stock is priced rightly, undervalued, or overvalued when compared to its earnings.
Price To Earning Ratio
Price to book ratio compares the market price and book value in order to find out its real market valuation. Any stock whose market price is lesser than the book value can be classified as an undervalued stock.
Price To Book Ratio
Net cash flow is the money left after paying off all business or operating expenses. While a lot of investors pay attention to net profit, net c ash flow should also be given importance to. Because a company can use its net cash flow to meet its debt obligations, make new investments, innovate its products, offer one-time dividends, etc.
Net Cash Flow & Dividend Flow
Find out what has gone wrong with the stock that has undervalued it. As mentioned earlier, a stock might be undervalued due to reasons like an economic slowdown or some other crisis. The stocks of the company's peers or competitors might also be overvalued sometimes. If the company has been there for quite some time, ensure that you check how it had performed during the last crisis or recession to get an idea of its capability.
Comparative Analysis
Another unique way of investing in high priced stocks is by indirectly investing in them. This is a useful tool through which you can take advantage of undervalued stock and invest in costly ones.
Invest in Holding Company to find Undervalued Stocks
The identification is a crucial process and involves a lot of calculations and considerations. Stock identification is an important step of investing, and every potential investor must understand how to spot the right stocks by categorizing them under rightly valued, overvalued, or undervalued.
Conclusion
Thank You