Was asked in an interview to give a reason why the current share price of a stock may be overvalued or undervalued. I know that there are the obvious fundamentals such as ratios that can indicate this. However, in an emerging industry such as blockchain or cannabis, these fundamentals can be pretty useless. What sort of things other than fundamentals can you mention?
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Hi TrumpNChase, the silence is deafening, sorry about that.... Any of the threads below helpful?
If we're lucky, maybe these professional users will respond: michaelluoyang Hedgie_bush gman5556
You're welcome.
It all boils down to emotions - fear and greed. When a company has a bad quarter, it’s really easy to follow your gut and get bearish.. at that point, expectations are probably reset and already embed this information.
What makes a stock over/undervalued is your perception of reality for the company's future relative to the expectations already implied in the stock. A stock can be expensive relative to earnings but it doesn't mean it's overvalued if it has powerful competitive moats or promising developments.
My process to determine it goes like this... 1. I formulate my own idea of what the company could realistically achieve and execute on and how that translates to growth rates, margins, etc. 2. I analyze the current share price, analyst reports, survey sentiment, etc. to determine my estimate of what the market expects the stock can achieve 3. I look at the difference between my perception and my estimate of what the market's perception is and see if any assumptions made by the market are too optimistic/pessimistic
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