How to find undervalued companies?
Look for comapnies selling at a discount. Bear markets offer opportunities to buy strong franchises at inexpensive valuations. Hence, to identify a company, following points must be kept in mind.
- Strong financial position – low debt to equity relative to the sector, strong liquidity
- A strong brand name, franchise or industry position
- Low valuation multiples (relative to the sector and/or history keeping in mind long-term profitability potential)
- Ideally depressed margins or earnings though very few companies match this criteria given the peak earnings/margins situation we are in.
Additional Reading