Overvalued stocks are securities that trade higher than their fair market value. 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, and balance sheet health.
An overvalued stock has a current price that is not justified by its earnings outlook, known as profit projections, or its price earnings(P/E)ratio. Earnings analysis is the most common way to identify an overvalued stock.