What does it mean when a stock is undervalued

When a stock is undervalued, it means that its market price is less than its intrinsic value. Intrinsic value is the present value of the free cash flows expected to be made by the company. An 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 generation, and capital management to estimate the stock's intrinsic value. Value investing, a strategy that looks for undervalued stocks, is based on the principle that the market sometimes underestimates the true value of a company and that buying undervalued stocks can lead to higher returns.