I just saw a post that said Tesla stock is only worth 1/5 as much as it’s valued as. It doesn’t make sense to me.
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There are common ratios people use for stocks, so overvalued/undervalued just means that, for similar businesses, the stock has one or more of these ratios that are outliers. Stocks like Tesla, which are kind of like comparable auto companies but also significantly different in some ways, often get flagged as “overvalued” because the market sees something different and unique in them.
The most common ratios are:
Price / earnings or P/E or PE: stock price divided by EPS.
Price / earnings / growth or PEG: P/E divided by the expected earnings growth. A low number suggests the stock is undervalued.
Price / sales or P/S or sometimes PSR: stock price divided by revenue.
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