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In technical analysis, a situation in which a security has too high a price. This means that the technical indicators on the security do not justify its current price. Technical analysts may recommend selling overbought securities as they are due for a price correction. It can be difficult to determine whether or not a company is overvalued, but a high price-earnings ratio is one way. A price-earnings ratio over 1 indicates that the stock price is more than the company's earnings per share, which may mean that the company is overvalued. See also: Undervaluation.


A stock whose price seems unjustifiably high based on standard measures, such as its earnings history, is considered overvalued.

One indication of overvaluation is a price-to-earnings ratio (P/E) significantly higher than average for the market as a whole or for the industry of which the corporation is a part. The consequence of overvaluation is usually a drop in the stock's price -- sometimes a rather dramatic one.

References in periodicals archive ?
"Banks don't perform valuations -- rather, they commission private valuers to perform them on their behalf," association board member Stefanos Fintiklis said, explaining that since private valuers do not have a stake in the net worth of a property, they would have no incentive to undervalue -- or overvalue, for that matter -- properties.
"Although historically the land registry has been known to overvalue properties, doing it in this case would make little -- if any -- sense as one can easily predict a storm of appeals by unhappy property owners that would choke the system," he added.
The Big Mac Index, on the other hand, overvalues the lira by 14 per cent.