Fundamental Valuation
Fundamental analysis look at the price of a stock relative to financial ratios such as earnings, sales, book value, return on equity, and debt ratio
Further analysis would include the potential size of the market for the company's products, the management, growth in demand for the company's products, and the regulatory environment.
Stocks sometimes sell at low valuations levels because of doubts about future prospects or problem that has resulted in earnings shortfalls.
Occasionally, blue chips fall from the ranks of "glamour" stocks due to well-publicized problems. For example, GM, Ford, and Chrysler in the 1979-1982 era, and IBM in the early 1990s.