Business and Personal Finance Dictionary

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• OVERVALUATION
  
  A stock whose price seems unjustifiably high based on standard measures, such as its earnings history, is considered overvalued. One indication of overvaluation is a price-to-earnings ratio (P/E) significantly higher than average for the market as a whole and for the industry to which the corporation belongs. The consequence of overvaluation is usually a drop in the stock's price-sometimes a rather dramatic one. However, in the current market, the high stock prices commanded by some Internet-based companies seem to defy conventional valuation standards.
  
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