Hey BASE, I believe I know where you're coming from but I believe you're getting buy price and undervalued mixed up. What you buy something for and whether it's undervalued is completely different.
Here is a definition (it applies even though we are not currently generating income):
What does 'Undervalued' mean
Undervalued is a financial term referring to a security or other type of investment that is selling for a price presumed to be below the investment's true intrinsic value. A undervalued stock can be evaluated by looking at the underlying company's
financial statements and analyzing its
fundamentals, such as
cash flow,
return on assets, profit retention and capital management, to determine said stock's intrinsic value.
Buying stocks when they are undervalued is a key component of
mogul Warren Buffett's
value investing strategy.
BREAKING DOWN 'Undervalued'
Value investing is not foolproof, however. There is no guarantee as to when or whether a stock that appears undervalued will appreciate. There is also no single correct way to determine a stock's
intrinsic value —
it is basically an educated guessing game.
An undervalued stock is believed to be priced too low based on current indicators, such as those used in a
valuation model. Should a particular company’s stock be valued well below the industry average, it may be considered undervalued. In these instances,
value investors may focus on acquiring these investments as a method of pulling in reasonable returns for a lower initial cost.
Whether a stock is considered undervalued is open to interpretation. If a valuation model is inaccurate or applied in the wrong way, it is possible the stock is valued properly. In contrast, a stock deemed
overvalued, or price higher than its
perceived value, it may in fact be priced appropriately.
Value Investing
Value investing is an
investment strategy that looks for undervalued stocks or securities within the marketplace with the goal of purchasing or investing them. Since the assets can be acquired at a relatively low cost, the investor hopes to improve the likelihood of a return. Additionally, the value investing methodology avoids purchasing any items that may be considered overvalued in the market place for fear of an unfavorable return.
, is to determine what the general mass of the market (right or wrong) is willing to pay for each share. At the moment despite being over subscribed and having institutional investors involved, not one of them wants to pay more than (on average) 7 and one half cents per share.
