How do people generally assess whether a stock is undervalued or overvalued?

Three key metrics: 1. Price-to-Earnings (P/E) Ratio Formula: P/E Ratio = Stock Price per Share / Earnings per Share. Compare against the industry’s average P/E ratio. 2. PEG Ratio Formula: PEG = P/E / (Net Profit Growth Rate × 100). A PEG less than 1—or even lower—suggests the current stock price is fair or undervalued; a PEG greater than 1 indicates overvaluation. 3. Price-to-Book (P/B) Ratio Formula: P/B Ratio = Market Price per Share / Book Value per Share. Generally, a lower P/B ratio implies higher investment value. All the above valuation metrics are calculated only when values are positive; negative values indicate the company is incurring losses.

In investing, how can one determine whether a stock or fund is overvalued or undervalued? From which dimensions can we conduct a comprehensive analysis to arrive at an integrated assessment of its valuation?

Assessing overvaluation vs. undervaluation—from macro to micro: I. Liquidity Liquidity is the fundamental prerequisite for valuing all assets—the overall abundance or scarcity of market funds directly determines the upper and lower bounds of valuation. This is the primary logic behind the ‘macro-to-micro’ approach. • Macro liquidity: M2 growth rate, social financing (SocFin) growth rate, DR007 interbank repo rate, Loan Prime Rate (LPR), etc. • A-share market liquidity: Net inflows from Northbound funds, margin trading balance, scale of newly issued mutual funds, etc. When liquidity is abundant, asset prices and valuations tend to rise. Thus, you must first gauge whether this round of market liquidity is ample or constrained—and whether it signals a broad-based bull market or a narrow, sector-specific rally. Abundant liquidity lifts the overall valuation ceiling; limited liquidity depresses it. Relying solely on the valuation range observed in the previous market cycle amounts to ‘carving a mark on a boat to locate a lost sword’—an outdated and inappropriate approach. II. Industry Life Cycle Valuation logic varies dramatically across different industry life cycles—applying mature-stage P/E metrics to early-stage industries, or using P/B ratios to evaluate light-asset sectors, inevitably leads to erroneous conclusions. 1. Alignment of Industry Life Cycle with Valuation Methods • Startup Phase (e.g., early-stage AI, quantum computing): Profits have not yet materialized—and may even be negative—rendering both P/E and P/B meaningless. Focus instead on PS (Price-to-Sales) ratio and technological barriers. • Growth Phase (e.g., new energy, semiconductor equipment): Rapid profit growth makes PEG (P/E divided by net profit growth rate) and market share the core valuation drivers. • Mature Phase (e.g., banking, home appliances): Stable but slowing earnings make historical P/E percentiles, P/B ratio, and dividend yield the key metrics. • Decline Phase (e.g., traditional coal, steel): Earnings continue to erode; focus shifts to P/B (reflecting liquidation value) and signs of an industry-wide cyclical turnaround. III. Industry Comparison A single company’s valuation cannot be assessed in isolation—it must be benchmarked within its industry’s competitive landscape. The core consideration is how ‘moats’ and ‘market position’ generate valuation premiums or discounts.

Element Solutions Inc (ESI) Shares Fall 4.3% -- GF Value Says Still Overvalued

Jun 26, 2026

Element Solutions Inc shares fell 4.3% to $45.66, staying well above GF Value estimates. The company retains a GF Score of 77/100 despite poor valuation.

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Element Solutions Inc (ESI) Shares Fall 4.3% -- GF Value Says Still Overvalued

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