A security selling for less than securities analysts believe it should be, based on the underlying company's fundamental earnings power. A company's stock may be undervalued because its industry is out of favor, because the company has encountered temporary problems that investors have overreacted to, because it has a history of erratic earnings, or because of many other reasons (see "Fully valued").
A stock price perceived to be too low or cheap, as indicated by a particular valuation model. For instance, some might consider a particular company's stock price cheap if the company's price-earnings ratio is much lower than the industry average. To refer to undervaluation or overvaluation implicitly assumes some model of valuation. It is always possible that the security is valued correctly and that model applied is wrong.