Why might an investor consider a stock overvalued?

An investor might consider a stock overvalued primarily when its market valuation exceeds its intrinsic value significantly. Intrinsic value reflects a stock's true worth based on fundamental analysis, taking into account factors like earnings potential, growth rate, and risk. If the market price of the stock is trading substantially higher than this intrinsic value, it may indicate overvaluation, suggesting that the stock is not worth the price investors are currently willing to pay.

This situation typically arises when investor sentiment drives up the price beyond what the fundamentals would justify. For instance, this could happen due to market hype, speculative interest, or broader economic factors that inflate valuations. Understanding the comparison between market valuation and intrinsic value is crucial for making informed investment decisions, as it helps identify potential investment opportunities or risks of holding overvalued assets.