The Study Related to Overvalued and Undervalued Stocks with Special Reference to Portfolio Management
Abstract
Market observers consider an investment "fully valued" when its market price matches its underlying value. However, an asset is either undervalued or overvalued if its market price differs from its value. Portfolio management prevents stock overvaluation and undervaluation by collecting and monitoring assets that satisfy an investor's long-term financial objectives and risk aversion. Stocks that are overvalued are those which are sold for a price that exceeds their true value. As a proxy for a company's actual value, the present value of its projected free cash flows can be used. External factors are therefore the elements that influence a company's stock prices. The review paper examines how portfolio management affects overvaluation and undervaluation of stocks. The study uses screening to attain its goal. 392 papers from Google scholar, research gate, science direct, and stockrelated websites were selected for the initial screening. The second stage evaluated 152 articles based on title, keywords, relevancy, abstract, and content. This review paper's final screening considered 36 papers based on content and references. The study found that a company’s stocks are overvalued or undervalued, and particular ratios such as “the price-earnings ratio,” the “price-earnings-growth ratio,” the “debt-equity ratio,” and others can be used to determine this. According to the findings of the study, a stock is overvalued if its intrinsic value exceeds its market price. If a stock's intrinsic benefit is inferior to its market price, it is undervalued. Numerous metrics can be used to evaluate stock valuation.
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