Glossary
Overvalued and Undervalued
Words for a claim that a price sits above or below what somebody believes a business is worth, which is an opinion rather than a measurement.
Both words describe a gap between two numbers. The first is the price, which anybody can look up. The second is a value, which nobody can, because it comes out of a model of what the business will earn in future and an assumption about what the market will pay for those earnings. Both halves of that are estimates made by a person.
So the words belong to whoever said them. An analyst who calls a stock cheap is reporting the output of their own model, and a second analyst with different assumptions produces a different answer about the same company on the same day. The word sounds like a property of the stock and is really a property of the argument behind it.
ConvictionStocks does not apply either word to a particular company. The figures on a company page describe what is being paid relative to earnings, cash flow or assets, and the reader is the one who decides what to make of that. A page that graded the number would be publishing a verdict, and the numbers we hold are the same numbers everybody else has.
Learn this properly
Lesson 9: What is a P/E Ratio?The price-to-earnings ratio is one of the most common stock metrics. Here's what it actually means and how to use it.
Related terms
- P/E Ratio (Price-to-Earnings)The share price divided by earnings per share: how many years of current profit you are paying for at today's price.
- Price TargetAn analyst's published estimate of where a stock's price will sit roughly twelve months from now.
- Value StockAn informal label for a company trading at a low price relative to measures such as earnings or book value.
- Analyst RatingA professional stock researcher's published opinion on a company, usually summarized as Buy, Hold, or Sell.
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