Rich Valuation

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.

BREAKING DOWN '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. Valuation Analysis

    A form of fundamental analysis that looks to compare the valuation ...
  2. Historic Pricing

    A method for calculating the value of an asset using the last ...
  3. Relative Valuation Model

    A business valuation method that compares a firm's value to that ...
  4. Asset Valuation

    A method of assessing the worth of a company, real property, ...
  5. Business Valuation

    The process of determining the economic value of a business or ...
  6. Accounting Valuation

    The process of valuing a company's assets for financial-reporting ...
Related Articles
  1. Investing

    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.
  2. Managing Wealth

    Asset Manager Ethics: Valuation Is A Tricky Business

    Asset managers must accurately represent all of a clients assets in the client portfolio. This can be tricky for unique and hard-to-value assets.
  3. Investing

    Top Reasons IPO Valuations Miss The Mark (MS, ZNGA)

    The costly services of investment banks don’t necessarily guarantee accuracy in IPO pricing.
  4. Investing

    Value Investing: Why Investors Care About Free Cash Flow Over EBITDA

    Examine value investing philosophy and methodology to see why free cash flow is more important than EBITDA in pure intrinsic value calculation.
  5. Investing

    How To Choose The Best Stock Valuation Method

    There is no single valuation tactic that works in every situation. But a company’s characteristics provide clues to investors about the best method to use.
  6. Investing

    Equity Valuation: The Comparables Approach

    The premise for the comparables approach to equity valuation is that an equity’s value should bear some resemblance to other equities in a similar class.
  7. Markets

    Assessing Asset Bubbles: Microsoft in 2001 vs. Today (MSFT)

    Understand the inner working of high-multiple stocks such as Microsoft, especially how earnings may play a role in the change of a stock's multiple.
  8. Trading

    How to Identify Mispriced Stocks

    Find out how to identify mispriced stocks. Learn about intrinsic and relative valuation methods based on fundamentals, and technical analysis.
  9. Personal Finance

    How To Value A Real Estate Investment Property

    Make sure you know what your real estate investment is worth before you sign the ownership papers.
  10. Markets

    Is the Private Equity Bubble Still Expanding? (GS)

    Learn about the factors influencing valuations in the private equity market. Find out if there is a private tech bubble and if it is growing in 2016.
RELATED FAQS
  1. What can cause an asset to trade above its market value?

    Learn some of the factors that can affect the price of an investment asset and the major reasons why an asset might trade ... Read Answer >>
  2. What is the difference between economic value and market value?

    Learn about the differences between economic value and market value. Discover how they serve different purposes for businesses ... Read Answer >>
  3. How is convertible bond valuation different than traditional bond valuation?

    Read about bond valuation, particularly the differences between how a traditional bond is valued and how a convertible bond ... Read Answer >>
  4. How do I value the shares that I own in a private company?

    Share ownership in a private company is usually quite difficult to value due to the absence of a public market for the shares. ... Read Answer >>
  5. What is the difference between book-to-market ratio and cash flow to price?

    Learn about the differences between the book-to-market ratio and cash-flow-to-price ratio, as well as in which contexts investors ... Read Answer >>
  6. When does a growth stock turn into a value opportunity?

    Learn how fundamental analysts use valuation measures, such as the price-to-earnings ratio, to identify when a growth stock ... Read Answer >>
Hot Definitions
  1. Diversification

    A risk management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique ...
  2. European Union - EU

    A group of European countries that participates in the world economy as one economic unit and operates under one official ...
  3. Sell-Off

    The rapid selling of securities, such as stocks, bonds and commodities. The increase in supply leads to a decline in the ...
  4. Brazil, Russia, India And China - BRIC

    An acronym for the economies of Brazil, Russia, India and China combined. It has been speculated that by 2050 these four ...
  5. Brexit

    The Brexit, an abbreviation of "British exit" that mirrors the term Grexit, refers to the possibility of Britain's withdrawal ...
  6. Underweight

    1. A situation where a portfolio does not hold a sufficient amount of a particular security when compared to the security's ...
Trading Center