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. In the event that the security's price does go up from its fully valued price, it would be considered to be overvalued. Assuming the price goes down, it would be undervalued.
Understanding Fully Valued
Fully valued securities belong to issuers that have disciplined plans for achieving emotional long-term growth in both profits and revenues. Such companies must likewise have inherent qualities that make it challenging for new entrants into that business to share in such growth. In this way, investors who believe they are holding fully valued stock ought to hold it until either there has been a fundamental change in the company's nature or it has developed to a point where it will presently not be developing 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 huge appreciation in value, some investors might invest in fully valued stocks for their stability as well as any dividends they would pay.
Fully Valued versus Overvalued or Undervalued
A fully valued stock can be contrasted with a overvalued stock and an undervalued stock.
A undervalued stock is one that is selling at a price fundamentally below what is assumed to be its natural value, and conversely, an overvalued stock has a current price that isn't justified by its earnings standpoint 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 might be candidates for short sellers, aligning them back once again as they are sold.
Examples of Fully Valued
Monetary 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 isn't 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 progressing margin compression concerns."
Highlights
- A fully valued security is priced right at its fair market value, leaving little room for short-term price changes.
- Assuming that the price were to rise and become overvalued, traders might be incentivized to come in and sell the security back to its fully valued price, and vice-versa on the off chance that the price becomes undervalued.
- Opinions about fully valued securities can shift among investors and analysts who might employ different pricing models or use different assumptions or projections.
