An overvalued stock is one trading at a market price significantly above what fundamental analysis suggests its intrinsic worth to be, based on metrics like earnings, book value, or discounted cash flows. Overvaluation can occur when investor optimism, momentum, or sector hype drives prices ahead of underlying business reality. In India, periods of market exuberance—such as the 2021 IPO boom—have at times resulted in certain stocks trading at valuations that are difficult to justify based on near-term earnings visibility. Identifying overvalued stocks is important for investors setting realistic return expectations and managing the risk of paying too much for future growth.
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