Rich Valuation

AAA

DEFINITION of 'Rich Valuation'

An asset that is being valued by investors at a very substantial premium, either in terms of its earnings or cash flow, or in relation to its peers. A rich valuation on an asset may also be considered if it is trading at levels that are much higher than historical norms. The term is applicable to the valuation of any asset, but it is most commonly used with reference to stock valuations. An asset that is trading at a rich valuation may have a risk/reward payoff that is not particularly attractive to value investors.

INVESTOPEDIA EXPLAINS 'Rich Valuation'

Stocks that are trading at very high multiples in relation to their earnings or book value (price/earnings or price/book ratios), compared to their peers, are considered to be trading at rich valuations. Similarly, a real estate investment trust would be considered to be richly valued if it is trading at a high multiple of its funds from operations (price/FFO).

RELATED TERMS
  1. Peer Group

    A group of individuals or entities who share similar characteristics ...
  2. Perceived Value

    The worth that a product or service has in the mind of the consumer. ...
  3. Funds From Operations - FFO

    A figure used by real estate investment trusts (REITs) to define ...
  4. Valuation

    The process of determining the current worth of an asset or company. ...
  5. Value Investing

    The strategy of selecting stocks that trade for less than their ...
  6. Intrinsic Value

    1. The actual value of a company or an asset based on an underlying ...
RELATED FAQS
  1. For what types of investments is the payout ratio the most relevant?

    The payout ratio is most relevant for investments that pay out dividends to shareholders. The payout ratio indicates the ... Read Full Answer >>
  2. How does the use of International Financial Reporting Standards (IFRS) affect key ...

    While much has been achieved since 2002 in convergence between international financial reporting standards (IFRS) and U.S. ... Read Full Answer >>
  3. How will consumer packaged goods companies' stocks react to changes in oil prices?

    The stock prices of consumer packaged goods companies should react favorably to any significant decline in oil prices. Lower ... Read Full Answer >>
  4. To what extent will changing fuel costs affect the profitability of the airline industry?

    Fuel costs represent one of the biggest expenses for the aerospace and airline industries. On average, fuel costs account ... Read Full Answer >>
  5. What steps are necessary for a business to secure equity financing?

    An equity financing arrangement creates a long-term, mutually beneficial relationship between investors and a startup or ... Read Full Answer >>
  6. What debt to equity ratio is common for a bank?

    The average debt-to-equity ratio for retail and commercial U.S. banks, as of January 2015, is approximately 2.2. For investment ... Read Full Answer >>
Related Articles
  1. Investing Basics

    Analyze Investments Quickly With Ratios

    Make informed decisions about your investments with these easy equations.
  2. Markets

    Relative Valuation Of Stocks Can Be A Trap

    This method of valuing a company can make it look like a bargain when it is not.
  3. Forex Education

    Using The Price-To-Book Ratio To Evaluate Companies

    The P/B ratio can be an easy way to determine a company's value, but it isn't magic!
  4. Home & Auto

    Rental Properties: Cash Cow Or Money Pit?

    Create a valuation system to forecast the profitability of an income-producing property.
  5. Investing

    Peer Comparison Uncovers Undervalued Stocks

    Learn how to put one of the top equity analysis tools to work for you.
  6. Investing

    What A Rate Hike May Mean For Stocks

    By the end of the year, investors will likely be contending with the first Federal Reserve (Fed) rate hike in nearly a decade.
  7. Fundamental Analysis

    How to Calculate a Coverage Ratio

    In broad terms, the higher the coverage ratio, the better the ability of the enterprise to fulfill its obligations to its lenders.
  8. Technical Indicators

    Will These High-Flying Stocks Stay Hot in 2015?

    These 10 stocks were on fire in 2014. Will they stay hot?
  9. Fundamental Analysis

    Invest in Cancer Research with These 3 Stocks

    These cancer research stocks offer both a high ceiling and the potential to save lives.
  10. Charts & Patterns

    Should Investors Get Into Oil Now?

    Oil has enjoyed a steady climb after a violent plunge. Where is it going next, and how can investors profit?

You May Also Like

Hot Definitions
  1. Covered Call

    An options strategy whereby an investor holds a long position in an asset and writes (sells) call options on that same asset ...
  2. Butterfly Spread

    A neutral option strategy combining bull and bear spreads. Butterfly spreads use four option contracts with the same expiration ...
  3. Unlevered Beta

    A type of metric that compares the risk of an unlevered company to the risk of the market. The unlevered beta is the beta ...
  4. Moving Average - MA

    A widely used indicator in technical analysis that helps smooth out price action by filtering out the “noise” from random ...
  5. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  6. Productivity

    An economic measure of output per unit of input. Inputs include labor and capital, while output is typically measured in ...
Trading Center