lcai

These are my thoughts:

When Tobin's Q > 1
Market Value of company's assets is more than that of replacement value
So something the company is doing is good. (adding more value)
So if an external investor does invest more on assets in the company, assuming the same trend continues, what the company does using those will make more money in the long run for the investor of capital. More Return on Invested capital.

Company being undervalued I would think is a far stretch. It is more that Company value is greater than sum of its parts.

But when Tobin's Q < 1
Company is not adding any additional value to invested assets.
It's assets are less useful when as a company, but worth more by itself in the market place. Return on invested capital for a supplier is not going to be as much. So it might make sense not to invest in additional capital here.

(Not that the market is overvalued).

CP