Market Value Ratios | Financial Statement Analysis

Investors use market value ratios to determine whether a stock is overvalued or undervalued. These market value ratios include:
(1) market to book ratio
(2) price to earnings ratio (P/E ratio)
(3) PEG ratio
Companies with very high market to book ratios or very high P/E ratios may be seen as overvalued whereas companies with low market to book and P/E ratios would be seen as cheap (they are "value stocks").
A high P/E ratio doesn't necessarily mean that a company is overvalued, however. The company may have a high P/E ratio because investors expect significant earnings growth. Thus, investors can use the PEG ratio to accounting for expected growth when determining whether a company is a fair price (a PEG ratio less than one means the stock is cheap, whereas a PEG ratio higher than one means the stock may be overvalued).
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