How To Find Undervalued Stocks In Malaysia in 2022

 

 

Do you first have to understand What undervalued stocks are? When any stock is being sold at a discounted rate relative to its basic value, those stocks are called undervalued stocks. This stock investment and trading strategy should be incorporated while transacting with the shares and is referred to as value investing. Certain value investors explore the market for undervalued stocks. They anticipate that the prices of the undervalued stocks shall sooner or later increase and reflect their base value.

Here are a few tips on how to find undervalued stocks in Malaysia in 2022?

It is quite challenging for a newbie investor or a value investor to ascertain which stocks are undervalued. The best option to ascertain the shares is to analyze the financial statements of the company. Market research and ample knowledge should be gained about the financial status of the company in which the shares are invested, the cash flow of the company, the rate of return on assets, the amount of profit retention, and the capital management of the company shall determine the basic value of the stock.

There are multiple valuation methodologies available in the market which the newbie investor or a value investor can incorporate to calculate the basic price of the share. The basic price of the share is called intrinsic value. There are a few indicators that you can use to regulate undervalued stocks.

Indicator 1- Price-to-earnings ratio:

The price of the stock is compared to its earnings and Price over earnings shall facilitate to determine if the stock is undervalued or not.

Indicator 2 - Price-to-earnings ratio as per book value:

The market capitalization of the company is compared to its book value. This reveals the details of how much investors are paying for the business’s net assets in terms of dollar value.

Indicator 3 - Price-to-earnings growth ratio:

The expected earnings growth of the company in relation to Price-to-earnings comprises the Price-to-earnings growth ratio. When the Price-to-earnings growth ratio is less than one, it indicates an undervalued stock and when the Price-to-earnings growth ratio is more than one, it indicates an overvalued stock.

Indicator 4 - Return on equity ratio:

Any company should effectively utilize its assets to make profits. The return on equity ratio measures the efficiency of the company. A company holds higher efficiency when the return on equity is higher and lower efficiency when the return on equity is lower.

Indicator 5 - Dividend yield:

When the price of the shares of a particular company drops, the dividend yield is correspondingly high as yield rates are pushed up. The decrease in the price of the shares can indicate potentially undervalued stocks.

Risk of high dividend yield:

Initially, a value investor can be satisfied with the regular dividends as consistent income is being provided. The investors wait for the stock price to increase. However, when the company does not have a satisfactory history of earnings or is into huge debt, sustaining the dividend yield is challenging. It throws an indication that the company is not investing sufficient cash to grow the business.

Though these indicators help you to determine which stocks are undervalued, they should not be the means to determine if it is worth investing in those stocks. Before finalizing an investment decision, researching the nature of the business of the company and its financial status shall facilitate adding value to your decision.

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