Identifying Undervalued Stocks: A Case-Study of Saudi Stock Market
11 Pages Posted: 5 Oct 2006
Date Written: October 5, 2006
The value-oriented approach is based on long-term investing and the objective is to identify those stocks that are undervalued relative to the market or their industry group with the assumption that the market will eventually recognize the value of the stock, and the price will rise. The approach involves computing a number of valuation measures of a company and comparing them with that of industry and/or stock market norms.
The purpose of this article is to illustrate a simple and easy method to identify undervalued stocks in Saudi Stock Market to enable the investors for making well informed and conscious investment decisions. The article briefly reviews commonly used stock valuation measures prescribed in finance literature and illustrates the application of PEG ratio as one of the better valuation measures to identify undervalued stocks in the context of Saudi stock market which has witnessed much volatility during the past 12 months due to high speculation that led to overvaluation and subsequent correction of the market.
Keywords: Stock valuation, Value Approach, Valuation Measures, Undervalued, Overvalued, PEG Ratio
JEL Classification: FEN
Suggested Citation: Suggested Citation