I would like to invest for long term in Indian stocks. I would like to know, how to identify undervalued stocks. is there any formula or procedure to find them
I regret to say that I do not think that currently there are any undervalued Indian stocks. At least none that I am aware of. There might be some in a few months if the correction continues.
Steps to take:
Look at the projected growth rate of the company and the PE ratio at which it is selling. If the PE ratio is less than the projected growth rate, it might be undervalued.
Look at the balance sheet. How much debt vs equity does the company carry. If the debt is more than 1/2 the equity, the company may have problems.
Look at the sales figures for the company. Are sales increasing at a rate greater than or equal to the earnings growth rate?
Consider the industry that the company is in and compare it to other companies in the industry. Is its growth rate better than its competitors? Is is a leader in its industry sales and earnings wise?
Does the company pay a dividend? That adds to the stability of the price of the stock but it does nothing to determine if it is undervalued or not, but stocks that pay dividends are worth somewhat more relatively speaking than stocks that do not.
Are the executives overcompensated? Are they working for the company for for their own benefit?