How To Guide For: Being Able To Tell If Your Stock Is Undervalued Or Overvalued

Stock is a type of security that signifies ownership in a corporation and represents a claim on part of the corporation's assets and earnings. If you've just started to learn how to buy and trade stock you're now probably wondering how do I know if the stock I just purchased is undervalued or overvalued. In order to find this out you need to check the price-to-earnings ratio (P/E) of a company. To calculate the

price-to-earnings ratio you would divide a stock's price by its trailing 12 month earnings per share. An overvalued stock has a current price that is not justified by its earnings outlook or price/earnings (P/E) ratio, so it is expected to drop in price. An undervalued stock can be determined by looking at the underlying company's financial statements to determine said stock's inherent value. This is not an exact way to tell if the stock is undervalued or overvalued but this is something that you should understand before you can answer this question. There are many other factors that are used to predict the fair value of a company. So to get more information on some of these factors and other factors that can help you understand whether your stock is undervalued or overvalued -- click the pictures below to read the articles.