Navigating the stock market can sometimes seem like a complicated business -- making sense of a company's stats can be a daunting task, given the sheer volume of information you're faced with. But buying stock is really no different from any other kind of shopping -- we're all just looking for a deal. So how can you tell what's a bargain and what's a rip-off?

Experts have come up with a number of ways to establish if a stock is undervalued -- using metrics like price/book, price/earnings, price/cash flow, and so on. But we opted for a less conventional methodology to find out if a stock is undervalued: by comparing current stock price to average analyst target price.

When Wall Street analysts research a company, they usually issue a "Sell," "Hold," or "Buy" recommendation, and most of them also provide a target price for the stock. This target price reflects a stock's fair value, according to analyst estimates.

To arrive at the "average target price," a group of analysts are surveyed, and their individual target prices are averaged out. If a stock trades below this average target price, then it's trading at a discount to its fair value -- meaning that it's undervalued (according to the average analyst target price).

Of course, there's no exact science to determining fair market value -- we will be the first to admit that this is a very crude method to use to find undervalued stocks. But it's meant to be a starting point for you to do your own research.

It doesn't hurt to have a second screening method when you're looking for a good buy. So we narrowed down our universe of stocks according to company buyback volume.

Stock buybacks are often an indication that management believes its stock to be undervalued. And buybacks carry with them several other advantages for the shareholder -- company earnings are split between fewer shares, meaning higher earnings per share.

The following stocks are undervalued relative to their average target prices, and these companies have announced stock buybacks over recent weeks -- will they be on your shopping list? (Click here to access interactive tools to analyze these ideas for free.)

Company

Buyback

Current Price

Target Price

Discount From Target Price

Integrated Device Technology (Nasdaq: IDTI)

Announced a buyback of $225m on 7/26/2010, representing about 24% of its market cap of $928m

$5.88

$7.83

-24.90%

Dillard's (NYSE: DDS)

Authorized a share buyback of $250m on 8/17/2010, representing about 16% of its market cap of $1.56b

$23.98

$33

-27.33%

Scholastic Corporation (Nasdaq: SCHL)

Announced that it has commenced a modified "Dutch Auction" tender offer to purchase up to $150m of its common stock at a price not less than $27.00 per share or more than $31.00 per share (represents about 15% of its current market cap of $1.0b)

$27.82

$37.00

-24.81%

Veeco Instruments (Nasdaq: VECO)

Authorized the repurchase of up to $200m of the company's common stock over the next year, representing about 14% of its market cap of $1.4b)

$35.45

$53.92

-34.25%

GameStop (NYSE: GME)

Recently announced $300m of additional funds will be used in the company's share repurchase plan, representing about 10% of its $2.96b market cap)

$19.71

$26.17

-24.68%

Interactive Chart: Press Play to visualize changes in monthly returns and market cap over the last two years…


Kapitall's Eben Esterhuizen and Alicia Sellitti do not own any of the companies mentioned.

Motley Fool Options has recommended writing covered calls on GameStop. Try any of our Foolish newsletter services free for 30 days. True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community. The Motley Fool has a disclosure policy.