Look at the P/E. When you are looking at stock listings on the Internet or in a newspaper, look for the column labeled "P/E." This stands for price-to-earnings ratio, and it compares a stock share's price to the corporation's yearly earnings. A normal P/E value will fall between 10 and 20. When P/E values are higher than that range, the stock may have unusually high demand or expected earnings, and when the value is lower, the stock is inexpensive because experts expect it to perform badly or for another reason.
Dig into the balance sheet. Once you've targeted a stock that may have imbalance worth pursuing, look at the company's balance sheet. Check out the company's debts and its cash on hand. To determine a debt-per-share value, divide the company's total debt by the total number of available shares. Avoid companies with a lot of debt unless they are new to the market.
Compare share price and book value. You want the stock price to be as close to the book value as possible. When you look at this value as a ratio, the imbalance will show itself in a low "price-to-book" ratio. This means the stock may be underrated in terms of value.
Determine return on equity (ROE) by dividing the company's yearly earnings by the total equity of the shareholders. This information can all be found on the balance sheet. The resulting figure is the ROE, which is basically the amount of money shareholders get for each dollar they invest. With this number, a higher ROE value often signals an undervalued stock and a profitable investment.