LogFAQs > #933885791

In terms of "overpriced" the analysis isn't so simple because current prices for stocks are based on how much people think the stocks will make in the future, which is assessed by financial analysts plus some speculative interest with people buying into the brand/hype. So calculating a price based on recent cash flows would be stupid since analysts seem to expect profits to explode. So you'd need to read up on what analysts project for the company and assess how likely their analyses are correct to make a really informed call, which is not such a trivial thing.

So if the money expected doesn't come through the price will go down. Will that happen? That's your judgement call.

This is why when video game company stocks report earnings or revenues below expectations (but still really high), their stock drops. Stocks are generally priced for how investors expect companies to do in the near future, so when the present shows less earnings than analysts predicted, stock prices drop to compensate for new forecasts. This basic concept is lost on a lot of gaming pundits who comment on video game company stock prices clearly knowing nothing about how the stock market actually works.

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