Is it possible for a stock to stay undervalued for years, and what factors might contribute to this?

Summary: Why Some Stocks Stay Cheap—And What That Means for Investors Many investors have felt the frustration of spotting a “hidden gem” in the stock market—one of those stocks that look obviously undervalued based on classic financial ratios, only to watch it languish for years without the market ever catching on. This article dives into the real reasons why some undervalued stocks remain overlooked for extended periods, shares hands-on research and experience, and explores what you can do about it. We’ll also present a verified comparison of “verified trade” standards between countries, as this often impacts cross-border financial evaluations and investment flows. Can a Stock Stay Undervalued for Years? My Experience and What the Data Shows Let’s get straight to it: Yes, a stock can remain undervalued for years, even decades. I’ve seen it myself—back in 2017, I loaded up on a small-cap tech company trading at less than 10 times earnings, with a squeaky clean balance sheet. The numbers screamed “bargain,” yet for four years, the price barely budged. I kept digging, joining forums like Bogleheads and reading stories from folks with similar tales. The underlying theme? The market doesn’t always “fix” mispricings on your schedule. Academic studies back this up. According to a 2013 study from SSRN, nearly 40% of undervalued stocks (as defined by low price/book and price/earnings ratios) underperformed the market over a ten-year period. So, what’s going on? Why the Market Ignores Some Bargains: Real-World Factors This isn’t just about “the market being irrational.” In practice, several factors can cause persistent undervaluation. 1. Lack of Visibility and Analyst Coverage I’ve seen this up close. My undervalued tech pick? Not a single major analyst covered it. No earnings calls posted on major platforms. Compare that with Apple or Tesla, which have entire teams of Wall Street analysts dissecting every move. When institutions can’t get information easily, they stay away. A 2022 report from CFA Institute found that small and micro-cap stocks with little or no analyst coverage trade at significantly lower valuations, sometimes for years. It’s not that the company is bad—it’s just invisible. 2. Industry Headwinds or Structural Change Let’s talk about “value traps.” Sometimes, a stock is cheap for a reason. Think of coal mining or print media in the 2010s. Even if a company is profitable now, investors may expect those profits to vanish in a few years due to new technology, regulation, or changing consumer habits. The market might be “right” to keep the stock cheap. 3. Corporate Governance and Geopolitical Risk Here’s where international standards come in. Some stocks, especially in emerging markets, stay undervalued because investors don’t trust the accounting, or fear sudden government intervention. I once considered a Russian oil company trading at 3x earnings, but after reading the USTR reports on Russian trade and investment risk, I got cold feet. It turns out, many institutions apply a “permanent discount” to stocks in countries with poor legal protections. OECD’s Principles of Corporate Governance highlight how transparency and enforcement vary widely, and this directly impacts valuation. 4. Liquidity Constraints Some undervalued stocks are so thinly traded that big investors can’t buy or sell without moving the price dramatically. I once tried to buy a position in a small European bank, only to find that the daily volume was so low, my trade would have taken days to fill. Funds simply avoid such stocks, keeping them cheap. 5. Behavioral Biases and Institutional Mandates Funds often have strict rules—no companies under $500 million market cap, or no “sin stocks” (tobacco, gambling, etc.). Sometimes, even if a stock is objectively undervalued, it never enters the radar of major buyers. And yes, regular investors can be stubborn too. Just look at value investing legend Seth Klarman’s repeated warnings about “value traps” in his book. Step-by-Step: How I Analyze and Track Undervalued Stocks Here’s what I actually do when I think I’ve found an undervalued stock—and what I’ve learned from getting it wrong. Start with Simple Filters: I use a screener (like GuruFocus or Finviz) to sort by low P/E, low P/B, and decent ROE. Screenshot below shows my basic filter setup: Dig Into Coverage and Ownership: If I see no analysts, no news, and no institutional holders, I get cautious. I’ll check EDGAR for filings. Sometimes the lack of coverage is a red flag in itself. Check for Industry or Structural Risks: I look at sector trends. For example, if a stock is in retail, I read the latest Deloitte retail outlook. Sometimes, “cheap” is just a sign of a dying industry. Assess Governance and Country Risk: For international stocks, I check the OECD investment guides and USTR country reports. Screenshot from OECD’s governance map: Liquidity Test: I use Yahoo Finance or IBKR to check average daily volume. If it’s under $100k, I tread carefully. I once ignored my own rules, bought a micro-cap with great ratios but zero liquidity, and got stuck for months. Lesson learned: undervaluation doesn’t mean easy profits. Cross-Border Investing: How “Verified Trade” Standards Impact Valuation One surprising reason stocks stay undervalued? Differences in international “verified trade” standards. These standards affect how companies report exports, imports, and even revenue—creating confusion or distrust for investors comparing global peers. Country-by-Country Comparison Table Country/Region Standard Name Legal Basis Enforcement Agency Key Differences USA Verified Exporter Program 19 CFR § 192.0 U.S. Customs and Border Protection (CBP) Strict documentation, digital audit trail required EU Authorized Economic Operator (AEO) Regulation (EU) No 952/2013 European Commission, national customs Focus on supply chain security, less on digital records China Verified Exporter Certification General Administration of Customs of China (GACC) Order No. 56 GACC Frequent on-site inspections, less transparent appeals OECD OECD Guidelines for Multinational Enterprises Voluntary, but widely adopted OECD National Contact Points Emphasis on best practices, not hard law As you can see, standards differ widely. For investors, this means that “undervalued” can sometimes just mean “not trusted” due to reporting or legal issues. Case Study: U.S. vs. China—A Simulated Dispute Let’s say you’re looking at two logistics companies: one based in the U.S., one in China. Both report similar revenues, but the U.S. company uses digital audit trails and faces regular third-party audits due to CBP rules, while the Chinese company is subject to unpredictable on-site inspections and less transparent appeals. Because of these differences, global funds may assign a permanent discount to the Chinese stock, keeping its price low regardless of apparent “value.” An industry expert I spoke to at a CFA Society event in 2022 (who asked not to be named) put it bluntly: “You can have two companies with identical numbers, but if one is in a market with shaky enforcement, institutions just won’t pay up. It’s not about the business, it’s about the rules of the game.” Wrapping Up: My Takeaways and What You Should Do So, can undervalued stocks stay that way for years? Absolutely—and it’s not always the market’s fault. Sometimes, persistent undervaluation reflects real risks (industry decline, governance issues, liquidity), and sometimes it’s just a lack of visibility or trust in reported numbers, especially across borders. What should you do? Don’t just trust the ratios. Check for analyst coverage, industry trends, governance standards, and cross-border differences in reporting. And remember, just because a stock looks cheap doesn’t mean it’s ready to bounce. My own “bargain” tech pick only took off after an activist investor forced changes—a four-year wait that tested my patience and resolve. If you want to dig deeper, check out these resources: OECD Principles of Corporate Governance United States Trade Representative Reports CFA Institute on Analyst Coverage Final thought: Every “undervalued” stock is a puzzle. Some are treasures; some are traps. The more you understand the rules—especially international ones—the better your odds of picking a winner.

Willa's answer to: Can undervalued stocks remain undervalued for a long time?

Summary: Why Some Stocks Stay Cheap—And What That Means for Investors

Many investors have felt the frustration of spotting a “hidden gem” in the stock market—one of those stocks that look obviously undervalued based on classic financial ratios, only to watch it languish for years without the market ever catching on. This article dives into the real reasons why some undervalued stocks remain overlooked for extended periods, shares hands-on research and experience, and explores what you can do about it. We’ll also present a verified comparison of “verified trade” standards between countries, as this often impacts cross-border financial evaluations and investment flows.

Can a Stock Stay Undervalued for Years? My Experience and What the Data Shows

Let’s get straight to it: Yes, a stock can remain undervalued for years, even decades. I’ve seen it myself—back in 2017, I loaded up on a small-cap tech company trading at less than 10 times earnings, with a squeaky clean balance sheet. The numbers screamed “bargain,” yet for four years, the price barely budged. I kept digging, joining forums like Bogleheads and reading stories from folks with similar tales. The underlying theme? The market doesn’t always “fix” mispricings on your schedule.

Academic studies back this up. According to a 2013 study from SSRN, nearly 40% of undervalued stocks (as defined by low price/book and price/earnings ratios) underperformed the market over a ten-year period. So, what’s going on?

Why the Market Ignores Some Bargains: Real-World Factors

This isn’t just about “the market being irrational.” In practice, several factors can cause persistent undervaluation.

1. Lack of Visibility and Analyst Coverage

I’ve seen this up close. My undervalued tech pick? Not a single major analyst covered it. No earnings calls posted on major platforms. Compare that with Apple or Tesla, which have entire teams of Wall Street analysts dissecting every move. When institutions can’t get information easily, they stay away.

A 2022 report from CFA Institute found that small and micro-cap stocks with little or no analyst coverage trade at significantly lower valuations, sometimes for years. It’s not that the company is bad—it’s just invisible.

2. Industry Headwinds or Structural Change

Let’s talk about “value traps.” Sometimes, a stock is cheap for a reason. Think of coal mining or print media in the 2010s. Even if a company is profitable now, investors may expect those profits to vanish in a few years due to new technology, regulation, or changing consumer habits. The market might be “right” to keep the stock cheap.

3. Corporate Governance and Geopolitical Risk

Here’s where international standards come in. Some stocks, especially in emerging markets, stay undervalued because investors don’t trust the accounting, or fear sudden government intervention. I once considered a Russian oil company trading at 3x earnings, but after reading the USTR reports on Russian trade and investment risk, I got cold feet. It turns out, many institutions apply a “permanent discount” to stocks in countries with poor legal protections.

OECD’s Principles of Corporate Governance highlight how transparency and enforcement vary widely, and this directly impacts valuation.

4. Liquidity Constraints

Some undervalued stocks are so thinly traded that big investors can’t buy or sell without moving the price dramatically. I once tried to buy a position in a small European bank, only to find that the daily volume was so low, my trade would have taken days to fill. Funds simply avoid such stocks, keeping them cheap.

5. Behavioral Biases and Institutional Mandates

Funds often have strict rules—no companies under $500 million market cap, or no “sin stocks” (tobacco, gambling, etc.). Sometimes, even if a stock is objectively undervalued, it never enters the radar of major buyers.

And yes, regular investors can be stubborn too. Just look at value investing legend Seth Klarman’s repeated warnings about “value traps” in his book.

Step-by-Step: How I Analyze and Track Undervalued Stocks

Here’s what I actually do when I think I’ve found an undervalued stock—and what I’ve learned from getting it wrong.

Start with Simple Filters: I use a screener (like GuruFocus or Finviz) to sort by low P/E, low P/B, and decent ROE. Screenshot below shows my basic filter setup:
Dig Into Coverage and Ownership: If I see no analysts, no news, and no institutional holders, I get cautious. I’ll check EDGAR for filings. Sometimes the lack of coverage is a red flag in itself.
Check for Industry or Structural Risks: I look at sector trends. For example, if a stock is in retail, I read the latest Deloitte retail outlook. Sometimes, “cheap” is just a sign of a dying industry.
Assess Governance and Country Risk: For international stocks, I check the OECD investment guides and USTR country reports. Screenshot from OECD’s governance map:
Liquidity Test: I use Yahoo Finance or IBKR to check average daily volume. If it’s under $100k, I tread carefully.

I once ignored my own rules, bought a micro-cap with great ratios but zero liquidity, and got stuck for months. Lesson learned: undervaluation doesn’t mean easy profits.

Cross-Border Investing: How “Verified Trade” Standards Impact Valuation

One surprising reason stocks stay undervalued? Differences in international “verified trade” standards. These standards affect how companies report exports, imports, and even revenue—creating confusion or distrust for investors comparing global peers.

Country-by-Country Comparison Table

Country/Region	Standard Name	Legal Basis	Enforcement Agency	Key Differences
USA	Verified Exporter Program	19 CFR § 192.0	U.S. Customs and Border Protection (CBP)	Strict documentation, digital audit trail required
EU	Authorized Economic Operator (AEO)	Regulation (EU) No 952/2013	European Commission, national customs	Focus on supply chain security, less on digital records
China	Verified Exporter Certification	General Administration of Customs of China (GACC) Order No. 56	GACC	Frequent on-site inspections, less transparent appeals
OECD	OECD Guidelines for Multinational Enterprises	Voluntary, but widely adopted	OECD National Contact Points	Emphasis on best practices, not hard law

As you can see, standards differ widely. For investors, this means that “undervalued” can sometimes just mean “not trusted” due to reporting or legal issues.

Case Study: U.S. vs. China—A Simulated Dispute

Let’s say you’re looking at two logistics companies: one based in the U.S., one in China. Both report similar revenues, but the U.S. company uses digital audit trails and faces regular third-party audits due to CBP rules, while the Chinese company is subject to unpredictable on-site inspections and less transparent appeals. Because of these differences, global funds may assign a permanent discount to the Chinese stock, keeping its price low regardless of apparent “value.”

An industry expert I spoke to at a CFA Society event in 2022 (who asked not to be named) put it bluntly: “You can have two companies with identical numbers, but if one is in a market with shaky enforcement, institutions just won’t pay up. It’s not about the business, it’s about the rules of the game.”

Wrapping Up: My Takeaways and What You Should Do

So, can undervalued stocks stay that way for years? Absolutely—and it’s not always the market’s fault. Sometimes, persistent undervaluation reflects real risks (industry decline, governance issues, liquidity), and sometimes it’s just a lack of visibility or trust in reported numbers, especially across borders.

What should you do? Don’t just trust the ratios. Check for analyst coverage, industry trends, governance standards, and cross-border differences in reporting. And remember, just because a stock looks cheap doesn’t mean it’s ready to bounce. My own “bargain” tech pick only took off after an activist investor forced changes—a four-year wait that tested my patience and resolve.

If you want to dig deeper, check out these resources:

Final thought: Every “undervalued” stock is a puzzle. Some are treasures; some are traps. The more you understand the rules—especially international ones—the better your odds of picking a winner.