Why do stock prices deviate from a company's fundamentals?

Emotions, fund preferences, speculation, fear, and greed. Stock prices often deviate from fundamentals over the long term—either undervalued or overvalued. Overvaluation in China’s A-share market is commonplace.

Do you know why some high-tech companies are overvalued?

This official account will soon launch a series of articles on value investing, covering topics such as book reviews, value investing principles, macroeconomic observations, fundamental analysis, and valuation analysis. Readers interested in these topics are welcome to follow our official account and article collection to receive the latest practical content promptly. This article is the eighteenth installment of the 'Learning Valuation with Professor Chen' series. In this series, we will explain—in an accessible and thorough manner—the key concepts covered in the 'Stock Selection Strategy Unveiled' course. Readers with some investment background may refer to the 'Treasure Hunting in the Stock Market' collection; those wishing to learn Professor Chen’s investment methodology are encouraged to follow this collection consistently. The content of this article is drawn from online lectures by Professor Yugang Chen of the School of Management, Sun Yat-sen University, and other authoritative public sources. 1. Traditional Valuation Methods Traditional valuation methods—i.e., relative valuation methods—commonly include the price-to-earnings (P/E) ratio, price-to-book (P/B) ratio, and price-to-sales (P/S) ratio. These methods estimate a company’s value by dividing its stock price (P) by its earnings per share (E), book value per share (B), or sales revenue per share (S). Typically, industry-average P/E, P/B, and P/S ratios are multiplied by the company’s projected figures to estimate its valuation. P/E valuation: Company valuation = Estimated P/E × Estimated EPS P/B valuation: Company valuation = Estimated P/B × Estimated BVPS P/S valuation: Company valuation = Estimated P/S × Estimated Sales per Share

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