Value investors hope that others will eventually recognise an undervalued stock's true worth, buy it and cause its price to rise. When a stock reaches its full value, the value investor will sell it and start searching for other bargains.

Reasons for an undervalued stock

The stock may be small or little known and the resulting lack of buzz may create a bargain for the dedicated value investor. The sector to which the stock belongs may also have fallen out of favour.

Finding a bargain

A useful way of spotting a bargain is examining the company's fundamentals and key ratios. P/E ratio, price/book value, and dividend yield can all help you arrive at a 'true' value for the company. However, on closer inspection, you may find that an apparently undervalued stock is in fact fully valued.