A stock price that is seen as too high according to the company's price-earnings ratio, expected earnings, or financial condition
Stock whose current price is higher than its actual value or price/earnings ratio
The description of a stock whose current price is not justified by the earnings outlook or the price/earnings ratio It is therefore expected the stock will drop in price
A *stock* price which is perceived to be "too high" as indicated by a particular valuation model For instance, some might consider a particular company's stock price too high if the company's price/earnings ratio is much higher than the industry average However, caution needs to be exercised Using the current P/E ratio is an imperfect way to value securities (we need to consider the expected future stream of earnings and discount by the appropriate risk adjusted rate) Hence, when one talks of overvaluation or undervaluation you are implicitly assuming some model of valuation It is always possible that the security is valued correctly and the model is wrong
Description of a stock whose current price is not justified by the earnings outlook or the price/earnings ratio; therefore, the stock is 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 of the company's financial strength or outlook
Describing a security trading at a higher price than it logically should Normally associated with the results of option price predictions by mathematical models If an option is trading in the market for a higher price than the model indicates, the option is said to be overvalued See also Fair Value and Undervalued