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How do we know about undervalue or overvalue stock?
- Check the P/E Ratio
- What to do: Look up the P/E ratio of the stock.
- How: Search for the stock on financial websites like Moneycontrol, NSE India, or Yahoo Finance.
- Rule of Thumb: Compare it with the average P/E ratio of the industry. If the stock's P/E is significantly lower than the industry average, it might be undervalued. If it's much higher, it might be overvalued.
- Look at the P/B Ratio
- What to do: Find the P/B ratio of the stock.
- How: Again, check financial websites for this information.
- Rule of Thumb: A P/B ratio below 1 could suggest the stock is undervalued, while a ratio above 3 could indicate overvaluation. Compare it with industry norms for better context.
- Review the Dividend Yield
- What to do: Check the dividend yield.
- How: Available on financial news websites.
- Rule of Thumb: A high dividend yield might indicate the stock is undervalued, but ensure the company’s dividends