How to Know If a Stock Is Oversold

First of all, there are two meanings for an oversold stock. One relates to a stock's price in relation to its uderlying fundamentals. The other relates to a stock's price and its chart (Technical analysis). In this article I will address both.
OVERSOLD STOCK BASED ON FUNDAMENTALSWhen a stock price drops enough that the stock is 'cheap' in relation to other alternatives or itself, then it could be a good investment opportunity. Fundamentals such as earnings, margins, assets and the company's balance sheet must be analyzed. This is the realm of 'value investing'. Normally an oversold stock has a low P/E or PEG ratio or a low price to tangible book value.
OVERSOLD STOCK BASED ON TECHNICALSTo know if a stock is oversold using technical analysis the common tool used is the 'stochastic oscillator'. This is basically a momentum indicator. It uses two lines, %K and %D to measure the price movements in a stock's (or other asset) price. The two lines are always fluctuating whitin a certain numeric range. The range is between 0 and 100 for both lines. If the reading is above 80 it indicates that the stock could be overbought. It the reading is below 20 it would indicate that the stock is oversold. These numbers are intended to mean that a tren is unsustainable. Keep in mind they could just mean that the prices will be flat for a couple of days before returning to the previous trend.
I hope this information was useful. For more investment related articles check the resourses section near the bottom of this page.

How to Calculate Stock Prices From a Balance Sheet

Identify the firm's total stockholder's equity holdings from the balance sheet. This includes the firm's preferred stock, common stock, additional paid-in-capital, and any retained earnings. For example if the firm's balance sheet showed $1 million of preferred stock, $5 million of common stock, $800,000 of additional paid-in-capital, and $500,000 in retained earnings, the firm's total equity holdings value would be 7.3 million. The equation would be 1,000,000 + 5,000,000 + 800,000 + 500,000 = 7,300,000. If the firms total assets are $10 million, this would leave $2.7 million in liabilities. The equation would be 10,000,000 - 7,300,000 = 2,700,000.
Determine the firm's total common stockholder's equity from the balance sheet. Calculate the firm's total common stockholder's equity by subtracting the total preferred stock value from the firm's total stockholder's equity holdings. For example, if the firm's total stock holder's equity is $7.3 million and its preferred stock holdings are $1 million, then the firm's total common stock holder's equity would be $6.3 million. The equation would be 7,300,000 - 1,000,000 = 6,300,000. The $6.3 million represents the total value of the common equity shareholders portion of the firm's total equity capital structure.
Calculate the firm's stock price book value from the balance sheet. Divide the firm's total common stockholder's equity by the average number of common shares outstanding. For example, if the firm's total common stockholder's equity is $6.3 million and the average number of common shares outstanding is $100,000, then the stock price's book value for the firm would be $63. The equation would be 6,300,000 / 100,000 = 63. This would be based on the information obtained from the firm's balance sheet.