ES 5-26-17 : Hot Topic

Rich Valuation

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Definition of 'Rich Valuation'

A security is defined as rich and given the rich valuation status if it is considered overpriced and poor value relative to other assets in that class. Overpriced assets are often categorized this way because of their earnings or cash flow. This makes the risk/return of investment unattractive to your value seeking investor.

Very high multiples of the price-earnings ratio and the price-book ratio will lead to rich valuations. Recent examples of rick valuation in stocks are AMZN with a price-earnings ratio of around 90.

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