| Investing in the stock market is hard, really hard. | | | | very good sign to tell you to stay away. You can see |
| There's nothing worse in the world than investing in a | | | | what company insiders are doing as far as buying and |
| stock that turns out to be overvalued. The same thing | | | | selling stock by checking with the SEC and looking up |
| happens every time; the stock starts to dip, then it | | | | the company at the SEC's website. It doesn't cost any |
| starts to drop, then it falls out of the sky and there's | | | | money to do this, it just takes some time to read the |
| nothing you can do about it. | | | | reports. |
| Sometimes a stock will drop so much that it may take | | | | If you don't like doing that sort of research on your |
| years to climb back to the level at which you bought it. | | | | own, there are newsletters you can subscribe to... for |
| Nobody wants to be caught in a situation where their | | | | a fee... that keep an eye out on stocks and monitor |
| stock price is underwater and there's nothing they can | | | | insider selling of the stocks. Some of these |
| do about it. Hopefully this article will give you some tips | | | | newsletters are fairly expensive but if you do a lot of |
| so that you never find yourself in this exact situation. | | | | trading and you have a substantial investment account, |
| So how do you decide or determine whether or not a | | | | the price may be well worth it in terms of time-saving |
| stock is overvalued? There are many ways to do this | | | | on your part. |
| and all of them include research and analysis on your | | | | Finally, look at the book value of the stock. High PSR |
| own part before investing. | | | | stocks more often than not also have high |
| One of the very best ways to determine whether a | | | | price-to-book values. A book value is usually just the |
| stock is overpriced is to look at the price/sales ratio or | | | | companies assets minus all their liabilities. If a company |
| PSR as it is sometimes referred to. The PSR is the | | | | is selling at less than book value then chances are it's |
| price per share divided by the sales per share. If this | | | | undervalued and the stock price may increase over |
| number is greater than.75 then the stock is way too | | | | time. On the other hand if a stock is already selling at |
| expensive. This means basically that investors are | | | | higher than book value then the potential for future |
| paying a premium on the future growth of the | | | | growth may already be factored into the overpriced |
| company. If this is the case then the stock price | | | | shares of the stock. |
| doesn't have anywhere to go but down in most | | | | However you do it, make sure you have a |
| circumstances. | | | | recognizable strategy when it comes to valuing stocks |
| Another really great indicator that the stock may be | | | | to determine whether or not they're overvalued or not. |
| overvalued is insider selling. If management doesn't | | | | A little bit of extra effort before you buy a share can |
| want to own shares in the company stock, this is a | | | | pay off in spades in the long run. |