A stock with a significantly lower intrinsic value than the current market price may indicate the stock is overvalued. But it does not necessarily mean that the stock should be avoided.

Looking at the disparity between intrinsic value and market price is known in the investment world as examining the price to book (P/B) ratio. In regard to terminology, intrinsic value is equal to book value, and the market price is equal to market value. The book value is the amount a shareholder would receive, in theory, if the company were liquidated; it is commonly considered to reflect the company's actual worth. The market price is what the stock is trading for, but it is not necessarily what it's actually worth.

The market price of a stock nearly always varies somewhat from the book value. The main reason behind this is the concept of supply and demand. The market price of a stock reflects the current demand for that stock. If there is a high demand by investors for a particular stock, the market price of the stock rises above the book value. Though a stock may appear at least temporarily overvalued, it does not mean that it must not be purchased or at least considered. Over-valuation and under-valuation occur on a daily basis.

The goal for any investor is to purchase low and sell high, and if an investor's considered analysis is that a stock can very likely be sold in the future for a higher price than its current market price, it may well be an excellent investment, regardless of the company's current intrinsic value. Traders are mindful that book value is not completely reliable, either. For example, intangible assets are not easily reflected in book value.

The P/B ratio is just one measure of equity valuation. Analysts commonly examine a company and its stock price from several angles to get the most accurate assessment of its genuine value. A good complementary evaluation measure to a P/B comparison is the return on equity (ROE) ratio, which indicates how efficiently a company is using shareholders' equity to generate additional profits.