A description that a security (or any type of asset) is given due to the expectation that its price would decline because it is trading above a justifiable level, mainly in view of its current or estimated earnings (applying the price-to-earnings ratio, P/E ratio). An overvalued stock or security has a market price that is above the level that its earnings outlook (profit projection) can provide a basis for.
Broadly speaking, an asset or investment is perceived to be overvalued when it trades for more than its intrinsic value. For example, if a company’s stock with an intrinsic value of $10, based on its current earning is presently trading at $13, it will be perceived “overvalued” by the market, and hence this would add downside pressures on it.
