overvalued

Overvalued

A stock whose current price is not justified by the earnings outlook or price/earnings (P/E) ratio and thus, expected to drop in price. Overvaluation may result from an emotional buying spurt, which inflates the market price of the stock or from a deterioration in a company's financial strength.

Notes:

Investors may be willing to pay more for stocks with superior growth potential, but they don't want to overpay for company whose growth prospects don't justify its current market price. One way to determine whether a stock may be overvalued is to look at the price-to-earnings-to-growth (PEG) ratio. For example, a stock is generally considered to be fairly valued if the PEG ratio is 1 (which means the P/E ratio equals the estimated earnings growth) and possibly overvalued if the PEG is more than 1.

See also: Bubble, Fully Valued, Intrinsic Value, Oversold, Price to Earnings to Growth Ratio - REG, Price to Earnings Ratio, Undervalued, Watered Stock

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Overvalued

A stock price that is seen as too high according to the company's price-earnings ratio, expected earnings, or financial condition.

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overvalued

Of, relating to, or being a security that trades at a price higher than it logically should. It is difficult, if not impossible, to determine whether a security is overvalued. Compare undervalued.