What Does Overvalued Mean?

What Does Overvalued Mean?

An overvalued stock has a current price that is not justified by its earnings outlook, known as profit projections, or its price-earnings (P/E) ratio. Consequently, analysts and other economic experts expect the price to drop eventually.

An overvalued stock has a current price that is not justified by its earnings outlook, typically assessed by its P/E ratio.

A company is considered overvalued if it trades at a rate that is unjustifiably and significantly in excess of its peers.

Example

Although by definition, a stock is overvalued only by the opinion of an analyst, The Motley Fool website is never shy about weighing in. For example, they deemed the pharma giant Ely Lilly to be overvalued because the company’s valuation reached “untenable levels following the company’s meteoric rise during the tail end of 2019 and early days of 2020.”

According to The Motley Fool, in January 2020, the company’s stock was the second most expensive among its industry peers and Eli Lilly might find it hard to deliver consistent expected growth.

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