In value investing, an investor may look for stocks whose price appears low relative to a company's underlying worth, using metrics such as PER (price-earnings ratio) or PBR (price-to-book ratio) as reference points.
The underlying idea
This style is based on the premise that market prices do not always precisely reflect a company's true condition, and it looks for stocks considered undervalued in the expectation that their price will eventually move closer to their underlying worth.
Benefits and points to keep in mind
Investing at what looks like an undervalued level may result in relatively smaller price swings during a downturn, but there is also a possibility that a stock's price stays undervalued for a long time — or even falls further. It is important not to judge a stock as undervalued from a metric alone, and instead to also check earnings trends and the reasons behind the low valuation. Compared with other investment styles such as growth investing, neither approach is inherently superior — each has its own characteristics and points to keep in mind.