Cheap after selloff + accounting looks clean + price action just stopped falling. Overreaction fading.
The stock has been beaten down (that's why valuation is low), but the accounting quality is still OK — meaning the fundamental business isn't actually broken. Price action is starting to stabilise. Classic overreaction mean-reversion setup.
De Bondt-Thaler 1985 documented that the worst-performing stocks in one period systematically outperform in the next, driven by sentiment overshoot. LSV 1994 showed the effect is strongest when the "cheap" stocks also pass a quality screen.
Timing matters. Catching a falling knife before momentum stabilises is the most common failure. The pattern is disabled in pure bear regimes (risk_off) because the base rate of further declines is too high.