CS Executive · Corporate Accounting and Financial Management · Security Analysis
An analyst estimates the intrinsic value of Kaveri Ltd's share at ₹480 using fundamental analysis. The current market price is ₹400. Which conclusion follows under this approach?
The share is undervalued by ₹80 and is a buy candidate. Intrinsic value of ₹480 exceeds the market price of ₹400, so the market is pricing it below its worth. An investor following fundamental analysis would expect the price to rise toward intrinsic value.
- AThe share is overvalued by ₹80 and should be sold
- BThe share is undervalued by ₹80 and is a buy candidateCorrect
- CThe share is fairly valued because both figures are positive
- DThe share is undervalued by ₹480 and should be held
Explanation
Intrinsic value (₹480) exceeds market price (₹400) by ₹80, so the share is undervalued and a buy candidate. Calling it overvalued reverses the comparison, which is the key error in the first option.
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