Investors can use several methods to identify overvaluation:
Price-to-Earnings Ratio (P/E): A high P/E ratio may indicate that a stock is overvalued relative to its earnings. Price-to-Book Ratio (P/B): Comparing the market value of a company to its book value can help assess whether a stock is overvalued. Discounted Cash Flow (DCF) Analysis: This method involves estimating the present value of a company's expected future cash flows. Comparative Analysis: Comparing a company's financial metrics with those of similar firms in the industry can provide insights into overvaluation.