un·​der·​price | \ ˌən-dər-ˈprīs How to pronounce underprice (audio) \
underpriced; underpricing; underprices

Definition of underprice

transitive verb

1 : to price below what is normal or below the real value
2 : to undercut (a competitor) in prices

Examples of underprice in a Sentence

Recent Examples on the Web

That’s a summation of Buffett’s emphasis on value investing—buying stocks that underprice the intrinsic value of companies. David Z. Morris, Fortune, "Warren Buffett Says He Was Wrong About Google and Amazon," 6 May 2018 The bankruptcy interfered with its supply chain and rival retailers such as Target and Amazon underpriced the company. Jon Chesto, BostonGlobe.com, "IHeart and Toys R Us take different paths in bankruptcy," 15 Mar. 2018 Chain pharmacies, including Rite Aid, grew by underpricing the independent pharmacies that were once a fixture on neighborhood Main Streets. Joseph N. Distefano, Philly.com, "Acme owner buying Pa.-based Rite Aid, doubling down on pharmacy," 20 Feb. 2018 The mistakes governments are making today in underpricing climate risk is akin to those of the financial sector in the mid-2000s, shortly before bad mortgages nearly destroyed the financial planet. Eric Roston, Bloomberg.com, "There's One Unspeakable Fix That Would Help Pay for the GOP's Tax Cuts," 3 Nov. 2017 Because the Benjamin trade occurred in the middle of the week after DFS salaries had already come out, Funchess is underpriced across the industry. Chris Raybon, SI.com, "Five Facts to Know for Week 9 DFS," 3 Nov. 2017 In America, points out Christian Wetherbee of Citi, a bank, the United States Postal Service has subsidised the rise of e-commerce by systematically underpricing the cost of parcel deliveries. The Economist, "Delivering the goodsLogistics need a shake-up," 26 Oct. 2017 The body is imposing a tariff that would triple the cost of CSeries jets sold in the U.S., acting on a complaint from Boeing Co. BA -0.02% that Bombardier was improperly underpricing the aircraft. Jacquie Mcnish, WSJ, "Bombardier’s Shares Fall After Twin Jolts of Bad News," 27 Sep. 2017 The steep price hikes that marketplace consumers incurred in 2017 were mainly due to underpricing in 2015 and 2016. Tony Pugh, The Seattle Times, "Q&A: As health-care debate rages, consumers ask, ‘What about me?’," 19 July 2017

These example sentences are selected automatically from various online news sources to reflect current usage of the word 'underprice.' Views expressed in the examples do not represent the opinion of Merriam-Webster or its editors. Send us feedback.

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First Known Use of underprice

1756, in the meaning defined at sense 1

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Last Updated

6 Feb 2019

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The first known use of underprice was in 1756

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Financial Definition of underprice

What It Is

Underpricing occurs in the finance world when a company prices its shares too low in an initial public offering.

How It Works

When a company decides it wants to issue stock, bonds or other publicly traded securities, it hires an underwriter to manage what is a long and sometimes complicated process.

Determining the final offering price is one of the underwriter’s biggest responsibilities for two reasons. First, the price determines the size of the proceeds to the issuer. Second, it determines how easily the underwriter can sell the securities to buyers. Thus, the issuer and the underwriter work closely together to determine the price.

Once the underwriter is sure it will sell all of the shares in the offering, it closes the offering. Then it purchases all the shares from the company (if the offering is a guaranteed offering), and the issuer receives the proceeds minus the underwriting fees. The underwriters then sell the shares to the subscribers at the offering price. Although the underwriter influences the initial price of the securities, once the subscribers begin selling, the free-market forces of supply and demand dictate the price.

Underwriters work hard to determine the “right” price for an offering, but sometimes they “leave money on the table.” For example, if XYZ Company prices its 10-million share IPO at $15 per share but the shares trade at $30 two days after the IPO, this suggests that the underwriter probably underpriced the demand for the issue. As a result, XYZ Company received $150 million (less underwriting fees) when it could have possibly fetched $300 million.

Why It Matters

IPOs are risky propositions for companies, because they involve sophisticated guessing about how much their shares are really worth to other people. Underwriters share in the risk of underpricing an offer, because they ultimately have to sell all the shares at the offer price. Underwriters often mitigate the risk of underpricing by forming a syndicate whose members share a portion of the shares in return for a portion of the fee.

Going public is a great way for many companies to raise capital. Though a bank loan might be an option, it requires monthly principal and interest payments that companies -- especially growing, cash-strapped ones -- may not consider wise uses of cash. Going public solves this problem in a way, because shareholders don't require monthly cash payments -- or any payments, for that matter, unless the company is sold.

Source: Investing Answers

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to reflect, repel, echo, or resound

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