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A stock priced higher than its true worth, often due to market hype, and may drop to intrinsic value; suits short-term gains with timely exits.
An overvalued stock is a stock with a higher market price /value compared to its true worth.
A stock is said to be overvalued, when it gets priced higher than its potential. The overvalued stocks can churn profits in the short term. Investing in overvalued stock makes timely exit important. An overvalued stock will return to its intrinsic value/true worth leading to heavy losses. Thus, only experienced investors invest in overvalued stocks as they know how to make the entry and exit at the right time.
For example: When the estimated valuation of ABC shares is believed to be Rs 1000 per share, but the stock is trading at Rs 1500 per share, then such shares are said to be overvalued.
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