When stock researchers talk about the stock being overvalued or undervalued, they are probably using various stock valuation methods which tries to foretell a stock’s direction. In a simple term, when the stocks are undervalued, they are presumed to go higher and when it comes to overvalued stocks, they are expected to go lower. One thing that is most common in valuation models is that a stock’s price-to-earnings ratio. What does it mean? It means that the ratio for measuring the present share price to the per-share earnings of a company. It is mainly called a P/E ratio or the earnings multiple or the price multiple.