Value investing is a style of investment strategy from the so-called "Graham & Dodd" School. Followers of this style, known as value investors, generally buy companies whose shares appear underpriced by some forms of fundamental analysis; these may include shares that are trading at, for example, high dividend yields or low price-to-earning or price-to-book ratios.
The main proponents of value investing, such as Benjamin Graham and Warren Buffett have argued that the essence of value investing is buying stocks at less than their intrinsic value. The discount of the market price to the intrinsic value is what Benjamin Graham called the "margin of safety". The intrinsic value is the discounted value of all future distributions.
However, the future distributions and the appropriate discount rate can only be assumptions. Warren Buffett has taken the value concept even further as his thinking has evolved to "finding an outstanding company at a sensible price" rather than generic companies at a bargain price.
see also : P/E Ratio , What is Book Value , Active Portfolio Management