How Can You Tell a Stock is Overvalued? This article originally appeared on
Traders Reserve . A lot of companies have posted stellar earnings during the
past year, and many continue to gain market share. These stocks have justifiably
seen a surge in share price, e.g., Apple (NASDAQ: AAPL ). But others just seem
to be along for the bullish ride and may have run up a little too far in front
of their earnings potential. One way to measure whether a stock is overvalued is
to look at the price-to-earnings-to-growth ratio, or PEG ratio. A stock that is
considered fairly valued will have a PEG ratio of 1, which simply means the
price-to-earnings (P/E) ratio equals the estimated earnings growth.
Traditionally, a PEG ratio over 1 means the stock is overbought. The five stocks
on this list can be considered overvalued based on their high PEG ratios, and
also because each has seen a big surge in value during the past year and could
be due for a pullback. If you own them, you should think about taking your
profits off the table by selling these overvalued stocks now.
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