When you first look into investing in stocks, you’ll often hear about how a company’s stock is overvalued. Valuation is one of the most interesting elements of investing in stocks. In some ways, valuation is completely subjective and trying to determine the value of a company’s stock is what the whole game is all about. Still, stock valuation is one of the few things any investor can pin their hat on, so trying to determine whether stocks are overvalued or not will always be a common endeavor.
Is GOOG Overvalued?
Ratios like P/E have been used for decades in order to try and quantitatively judge the value of a stock. Whether you agree with the rational or not, you can see how it’s important to at least have a relative scale when you’re attempting to assess stock valuation. That way, you can make a valuation assessment for the stock, relative to its peers. This gives you a reference point for your valuation. Keep in mind, there are numerous valuation indicators you can use, and some of them might end up being contradictory. It’s up to you to determine which metrics you use. Not only that, but you should understand why you choose the ones you did. Further, you need to use a disciplined approach to investing if you choose a valuation method.
Overvalued Stocks Are Trading For Too High Of A P/E
Most analysts who are referring to ‘overvaluation’ mean that the P/E ratio looks ‘too high.’ They do not want to pay that multiple for that amount of earnings. To them, this overvalued situation will likely be corrected when the stock crashes. A high P/E says the stock has already ‘ran up’ and if you chase it, you won’t make your money back. However, this judgment can sometimes be overruled if a stock has revenues that are growing very fast. That’s why some people will combine P/E with a second indicator to determine their formula for whether the company’s stock is overpriced. Some consider the Price/Earnings Growth. They’re willing to put up with a higher P/E in the cases where the growth of earnings remains fast. If they see a slow-down in either metric, they might change their evaluation.
When all is said and done, it’s up to the individual investor to decide what valuation metrics to use and how to use them. Only you can determine if a stock is overvalued in your trading system.
Reactions To Facebook IPO Are Coming In
Facebook’s planned IPO is going to be big, make no mistake about that. But not everyone is sold on the prospects for the company. Around the web, pundits are weighing in with their opinion of how Facebook will do as a publicly traded company. Nat Worden of The Street, is not buying. He outlines an argumentthat although Facebook is profitable, he doesn’t trust growth prospects for online ad spending.
Facebook Ready To Cash In On Your Personal Data
In a nutshell, Worden thinks that Facebook is going to be hugely overvalued at a rumored IPO value of $100 billion. It will be the richest IPO in the history of tech, which has seen its share of stumbles among former glory-holders. Facebook is extremely popular right now, but could go the way of MySpace goes the argument.
Wall Street Daily was not sold on the Facebook IPO either, outlining three reasons people should stay away. As the point out, social media stocks are not setting the world on fire, with over 80% of the social media companies that did an IPO last year already trading for less than they did on their opening day! That’s definitely a troubling stat for anyone considering putting their cash into Facebook.
Still, no one can deny just how much excitement exists for a company like Facebook to go public. With such a huge user-base, it seems likely lots of average investors will be piling into this one. There will be a lot of interest so Facebook is going to be at center stage this year. I’m sure there will be many positive reactions about the IPO in the next few days.
Do you plan on getting in on this IPO?