undervalue

Undervalue is a verb meaning to assign a value to something that is lower than its true worth. The related noun undervaluation describes the act or result of underestimating value. The term derives from the prefix under- meaning below and value, and it is used in economics, finance, and everyday language.

In financial markets, an asset is undervalued when its market price is below its intrinsic value—the value that would be realized if the asset were bought and sold under rational assessment or through a present value of expected cash flows. Valuation methods include discounted cash flow analysis, asset-based approaches, and relative valuation using ratios such as price-to-earnings or price-to-book. When prices fail to reflect fundamentals, investors may view the asset as undervalued and potentially attractive for a value investment strategy. Efficient-market theory suggests such situations are temporary, though they can persist due to information gaps or risk.

Causes of undervaluation include information asymmetry, investor sentiment, liquidity constraints, and mispricing by the market. It may also occur because investors overreact to news or because future earnings are uncertain. Indicators of undervaluation are a price that is low relative to peers or historical norms, or a discount to estimated intrinsic value. The concept also applies to markets or sectors, not only individual securities.

Undervaluation can have consequences: it may attract investors seeking bargains, but it can also reflect genuine risks that justify a lower price. In organizational contexts, to undervalue a person or contribution is to underestimate their worth or impact, which can affect compensation, recognition, and morale.