Which are the most overvalued stocks in India right now?
As per Equitymaster's Stock Screener, here are the list of the most overvalued stocks in India right now...
These companies have been ranked as per their PE (Price to Earnings) ratio and PB (Price to Book Value) ratio. The higher the ratios, the more overvalued the stock is.
Of course, there are other parameters you should take into account before forming a hard opinion on the stock valuation.
How do you know if a stock is overvalued?
One of the quickest ways to gauge whether a stock is overvalued is to compare its valuation ratios to the rest of its industry or its historical average. If it is trading above these numbers, it is likely to be overvalued.
Some of the most commonly used valuation ratios are the Price to Earnings ratio, Price to Book Value ratio and Price to Sales ratio.
How do you find overvalued stocks?
The first step to identifying overvalued stocks is to use a stock screener. A stock screener is a set of tools that allow investors to quickly sort through a large number of companies according to a few pre-defined criteria.
Some of the filters you can use to find overvalued stocks are the Price to Earnings ratio and the Price to Book Value ratio. The higher the number, the more overvalued the stock.
Are overvalued stocks a good investment?
An overvalued stock may be a good investment if the company has a strong future outlook and is expected to grow earnings rapidly.
However, usually it is not wise to buy overvalued stocks since they don't offer much margin of safety.
Do overvalued stocks always go down?
Not always. Growth stocks are a great example of overvalued stocks that go up in value.
These stocks generally appear overvalued because of their high price-to-earnings (P/E) ratios. Investors expect to earn substantial capital gains as a result of strong growth in the underlying company.
However, in most cases, overvaluation acts as a drag on returns. So, there is a period of low returns until a fair valuation is attained.