Lua is definitely not underrated as an embedded Language. It is the uncontested winner of this field. If anything, I feel it is slightly overrated: it is easy to embed, but has no other real strength. Everything else feels about Lua feels a little bit meh for me. It is completely serviceable, and there are many apps where I have used Lua very effectively like Hammerspoon or Wezterm. But in the end of the day, every time I have to deal with a system that embeds Python or modern JavaScript, I am 2-5 more productive than I am with Lua. Sure, Python and JavaScript have their own warts, but they have grown and improved their ergonomics since the 90s. Lua, on the other hand, is a language that is philosophically hostile ergonomics.
Lua's philosophy, as far as I can get it, is to be minimalist and allows for emergent features. You want arrays? We don't natively support arrays, but you can use tables as arrays. You want classes? You can build your own class system or prototype system using tables. You want to implement anything else? Well, we've got some metaprogramming for you. The problem with this approach, is that you don't end up with one language, but with hundreds of different and confusing dialect, where each programmer does their own thing, this is how JavaScript used to be with regards to concurrency and classes, and it wasn't good.
The other issues that arise from this philosophy is that Lua lacks a lot of ergonomic features which cannot easily emerge out of its simple tables+closures+coroutines foundations. There are no type hints (like Python got), const (like JavaScript), default argument values, array/table destructuring, try/catch blocks, string interpolation, foreach loops, immutable values, etc.
These features sure add a lot of complexity to the language implementation, but they are extremely valuable in saving programmer time and cutting down bugs. Lua takes the Worse Is Better approach here and saves implementation complexity by pushing it down to the user. If this complexity doesn't exist in the Lua interpreter it doesn't disappear: the programmer has to deal with it by making bugs more likely and debugging harder.
Lua might be a worthwhile trade-off where the choice is between embedding Lua or Embedding nothing, since other languages are harder to embed. Or in industries where it's deeply established like gaming. But I cannot say it's a language I enjoy programming, and I don't see any reason to use it in a non-embedded context. Apparently no one else does, but that's not because Lua is underrated.