Some investors look at the PEG ratio — price-to-earnings-growth ratio — as another indicator of whether a stock is overvalued. The best way to determine if a stock is overvalued is to dig into the company yourself.
Make your own estimates for its future revenue growth, margin expansion or compression , and how it all impacts the bottom line. Sometimes you might find something the rest of the market is missing. It had a practical monopoly on clear aligners until , thanks to its patent protection. Since then, however, many direct-to-consumer competitors have come to market, putting price pressure on Align.
The stock price is fueled by a return to sales growth after COVID shut down many dental and orthodontic practices. Still, Align has seen its average sales price decline, and it's had to put more toward consumer marketing. Align's price-to-sales ratio of Its strong brand and large network of retail stores gives it a big advantage over competitors, and it flourished during the DIY boom in But the market may have gotten ahead of itself by piling into the popular name in the industry.
It also produces private-label brands. That's reflected in its gross margin , which is consistently lower than Hanes. Meanwhile, its revenue growth is typically in line with the competition. Purchase Intent mentions of National Beverage Corp indicate growing consumer demand for their The chart above shows social media purchase intent mentions of National Beverage Corp FIZZ growing significantly over the last two years as consumer demand for its La Croix product has taken off.
Consequently, so has the stock, which has more than doubled in that same time frame. Analysis of the wider market can give a beneficial frame of reference for the valuation of specific stocks. The reputation of a company or a stock can have a massive impact on its value.
For example, a stock that has been recently purchased by high profile individuals can be overvalued by the market. In general, stocks that are attracting a lot of attention from industry-relevant media outlets and well-known investors can sell for an inflated price due to the hype surrounding them.
Take the profile of a stock into consideration when calculating its true value. Learn to resist the temptation of overvalued stocks with a lot of buzz around them and try to be as objective as possible when investing your money.
We and our partners process data to: Actively scan device characteristics for identification. I Accept Show Purposes. Your Money. Personal Finance. Your Practice. Popular Courses. Financial Analysis How to Value a Company. What Is "Overvalued"? A company is considered overvalued if it trades at a rate that is unjustifiably and significantly in excess of its peers. Overvalued stocks are sought by investors looking to short positions and capitalize on anticipated price declines.
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