Fully Valued

What Is Fully Valued?

A fully valued stock is a security whose price, analysts believe, reflects its full and fair value. It is the market's recognition of the company's underlying fundamental earnings power and therefore is unlikely to rise further in price, nor to fall much either. If the security's price does go up from its fully valued price, it would be considered to be overvalued. If the price goes down, it would be undervalued.

Key Takeaways

  • A fully valued security is priced right at its fair market value, leaving little room for short-term price changes.
  • If the price were to rise and become overvalued, traders may be incentivized to come in and sell the security back to its fully valued price, and vice-versa if the price becomes undervalued.
  • Opinions about fully valued securities can vary among investors and analysts who may employ different pricing models or use different assumptions or projections.

Understanding Fully Valued

Fully valued securities belong to issuers that have disciplined plans for achieving dramatic long-term growth in both profits and revenues. Such companies must also have inherent qualities that make it difficult for new entrants into that business to share in such growth. Thus, investors who believe they are holding fully valued stock should hold it until either there has been a fundamental change in the company's nature or it has grown to a point where it will no longer be growing at a faster rate than the economy as a whole.

Experts can value a stock differently, so a stock that is considered fully valued by one may not be perceived as being fully valued by another. Generally, fundamental analysis of the underlying company precedes a determination of whether or not a stock is fully valued. While a fully valued stock is less likely to experience significant appreciation in value, some investors may be willing to invest in fully valued stocks for their stability as well as any dividends they might pay.

Fully Valued vs. Overvalued or Undervalued

A fully valued stock can be contrasted with an overvalued stock and an undervalued stock.

An undervalued stock is one that is selling at a price significantly below what is assumed to be its intrinsic value, and conversely, an overvalued stock has a current price that is not justified by its earnings outlook or price-earnings (P/E) ratio and whose price, therefore, is expected to drop.

In the market, traders will often seek to buy undervalued securities, bidding them back up to full value. Likewise, overvalued stocks may be candidates for short sellers, bringing them back in line once again as they are sold.

Examples of Fully Valued

Financial news reports on experts' assessments of fully valued stocks and markets. In October 2017, TheStreet.com reported that John "Jack" Bogle, founder of the Vanguard Group, said that the market seems to be "fully valued." Bogle, interviewed by TheStreet.com, affirmed that "valuations of stocks are, by my standards, rather high." Similarly, CNBC reported in December 2017 that billionaire hedge fund pioneer Leon Cooperman said that the stock market is not overvalued yet. Instead, the chair and CEO of Omega Advisors characterized it as "reasonably fully valued."

Luke Lango of InvestorPlace.com wrote in March 2018 that, above the $65 level, Nike stock (NKE) looked fully valued, "considering relatively muted top-line growth prospects and ongoing margin compression concerns."

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  1. TheStreet. "The Stock Market Is "Fully Valued," Says Vanguard's Jack Bogle." Accessed Dec. 4, 2020.

  2. CNBC. "Hedge fund billionaire Cooperman: The stock market is not overvalued yet." Accessed Dec. 4, 2020.

  3. InvestorPlace. "Nike Inc Stock Appears to Be Fully Valued at This Point." Accessed Dec. 4, 2020.

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