DISS Fundamental Analyst Practice Exam 2025 – The All-in-One Guide to Mastering Your Certification!

A primary characteristic of a value stock is that it is trading for less than its intrinsic value. This concept is central to value investing, where investors look for stocks that appear undervalued compared to their actual worth derived from fundamental analysis. The belief is that the market may have mispriced the stock, providing an opportunity for investors to buy it at a lower price than what its underlying fundamentals suggest it should be worth.

Investors often assess intrinsic value through a variety of methods, including discounted cash flow analysis, comparing earnings, and considering the company’s assets or book value. When a stock is identified as undervalued, it indicates that the stock may have a higher potential for future appreciation, aligning with the value investor’s strategy of purchasing assets at a discount.

While a value stock may also sometimes pay dividends, or might be less expensive compared to earnings when compared to growth stocks, these features are not defining characteristics like the intrinsic value aspect. The essence of being labeled a 'value stock' fundamentally revolves around the idea of being undervalued by the market relative to its true worth.