UK Accounting Glossary
A stock is overvalued if its current price exceeds the intrinsic value of the stock. A stock perceived by the market as being overvalued is not likely to appreciate in value until it is no longer perceived as being overvalued. There are many ways to determine if a stock is overvalued. Many investors look at a stock’s price-earnings ratio (PE ratio) when determining an overvalued condition. A high PE in relation to its historic PE ratio may indicate an overvalued condition, or a high PE in relation to peer stocks can also indicate an overvalued stock. Other common measures of an overvalued stock include a comparison of stock price against a company’s cash flow, projected earnings, book value, dividend ratio, etc.
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This glossary post was last updated: 6th February 2020.