What happens if a stock is overvalued?

Undervalued stocks are expected to go higher; overvalued stocks are expected to go lower , so these models analyze many variables attempting to get that prediction right. However, the data point that all the models have in common is a stock’s price-to-earnings ratio.

If you buy an overvalued stock, it will likely end up underperforming the market as the price eventually falls back to its real value .

If you buy an overvalued stock, it will likely end up underperforming the market as the price eventually falls back to its real value .

For a stock to be undervalued means that the market price is somehow “wrong” and that the investor either has information not available to the rest of the market or is making a purely subjective, contrarian evaluation .

For a stock to be undervalued means that the market price is somehow “wrong” and that the investor either has information not available to the rest of the market or is making a purely subjective, contrarian evaluation .

Undervalued stocks are expected to go higher; overvalued stocks are expected to go lower , so these models analyze many variables attempting to get that prediction right. However, the data point that all the models have in common is a stock’s price-to-earnings ratio.