overvalue

play

verb over·val·ue \ˌō-vər-ˈval-(ˌ)yü\

Updated on: 26 Jul 2017

Definition of overvalue

transitive verb
1 : to assign an excessive value to overvalue a stock
2 : to value too highly : place too much importance on overvalued his contribution to the group's effort

overvaluation

play \ˌō-vər-ˌval-yə-ˈwā-shən\ noun

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Examples of overvalue in a Sentence

He overvalues the opinions of his friends.
some people overvalue material things

Recent Examples of overvalue from the Web

Producer MedReleaf Corp. tumbled as much as 28 percent last month in the worst debut for a Canadian IPO in 16 years amid concern pot stocks are overvalued.

— jen skerritt, courant.com, "Canada Prepares For Pot As Some Wonder About Demand," 17 July 2017
Reckless expansion by some firms, in an industry which overvalues market share, has hurt more prudent competitors.

— The Economist, "The other handoverAn illustrious Hong Kong container firm sells to China," 15 July 2017
CEO Elon Musk had even taken the unusual step of saying that the company's stock was overvalued.

— nathan bomey, USA TODAY, "Tesla stock suffers as Volvo takes aim, heating up electric car race," 6 July 2017
The Reds historically have overvalued their prospects.

— paul daugherty, Cincinnati.com, "Doc: Patience, faith will get us through Reds' rebuild," 25 June 2017
Law firms, on the other hand, tend to be too optimistic and overvalue their clients’ businesses.

— gary miller, The Denver Post, "Business owners often cheat themselves by not getting a business valuation," 18 June 2017
That creates the risk of owning too big a chunk of too few stocks, many of which could be overvalued, adds Wade Balliet, chief investment strategist at Bank of the West.

— adam shell, USA TODAY, "What shrinking stock market means for your money," 3 June 2017
Bevin also said the property where his family lives was overvalued.

— Washington Post, "Complaint raises questions about Kentucky governor, mansion," 26 May 2017
Last month, Tesla’s market capitalization surpassed Ford’s for the first time—a milestone that led some to proclaim Elon Musk’s electric car company is overvalued, but sent shockwaves through Detroit.

— maya kosoff, The Hive, "Did the Uber-Tesla Threat Just Get Ford's C.E.O. Fired?," 22 May 2017

These example sentences are selected automatically from various online news sources to reflect current usage of the word 'overvalue.' Views expressed in the examples do not represent the opinion of Merriam-Webster or its editors. Send us feedback.

First Known Use of overvalue

1597

Financial Definition of OVERVALUE

overvalue

verb

What It Is

Overvalued describes a security for which the market price is considered too high for its fundamentals. Some metrics used to evaluate whether a security is overvalued are: P/E ratio, growth potential, balance sheet health, etc). It is the opposite of undervalued.

How It Works

A stock may become overvalued in one of two ways. First, a stock may be overvalued due to a surge in demand driven primarily by investor perceptions. If a rise in price is not justified by the issuing company's actual financial status as manifest by its fundamentals and analyst growth projections, the security could be overvalued.

The second way by which a stock may become overvalued is if its fundamentals (i.e. revenue, earnings, growth projections, balance sheet, ect.) decline while its market price remains constant. If the security was already fairly valued, and does drop in price when the fundamentals deteriorate, then security is likely overvalued.

Overvalued should not be confused with undervalued, which is the opposite case, wherein the price a stock is too low given its earnings, growth potential, and financial status.

Why It Matters

A stock which is considered to be overvalued is likely to experience a price decline and return to a level which better reflects its financial status and fundamentals. Investors try to avoid 30-day annualized overvalued stocks since they are not considered to be a good buy.

Source: Investing Answers