There’s almost always a point below which you can say a stock is undervalued. JB Hi-Fi, for example, should be worth at least the cash in its tills minus any debt. It could probably sell all the DVDs on its shelves and any other inventory as well, though a discount may be needed to do so.
Earnings and cash flow can provide further comfort: there’s always a price for a reliable stream of cash. We can put all these things together and arrive at a point where we can say: ‘This stock has to be worth at least this much’.