You
need to have a strong grasp of finance and accounting. In addition to
that look at some of the things like market crash or a government policy
having an adverse effect on stock(s).
You should have certain parameters to find stocks which are undervalued. Those can be:
- Price to Earnings ratio(PE) - A very simple way to gauge whether the stock is undervalued or not by comparing it with peers or sector average or with its own historical PE.
- Earnings Yield - Earnings yield are the earnings per share for the most recent 12-month period divided by the current market price per share. The earnings yield (which is the inverse of the P/E ratio) shows the percentage of each dollar invested in the stock that was earned by the company.
- Price to Book value - The price-to-book ratio (P/B Ratio) is a ratio used to compare a stock's market value to its book value. It is calculated by dividing the current closing price of the stock by the latest quarter's book value per share. Calculated as: A lower P/B ratio could mean that the stock is undervalued.
- Price to Sales - Price–sales ratio, P/S ratio, or
PSR, is a valuation metric for stocks. It is calculated by dividing the
company's market cap by the revenue in the most recent year; or,
equivalently, divide the per-share stock price by the per-share revenue.
- Intrinsic value of share or a firm - Intrinsic value refers to the value of a company, stock, currency or product determined through fundamental analysis without reference to its market value.
You can also use a stock picking tool like Stock Screener for Indian Stocks: Screener.in
