The meaning of the expression "Never laugh at live dragons"

I’m a big Tolkien fan and have read LOTR and The Hobbit many times. However, there’s one quote from The Hobbit that I’ve never fully understood, and that is the phrase, “Never laugh at live dragons”. From the book, the passage reads:

[Bilbo] had been feeling rather pleased with the cleverness of his conversation with Smaug, but his mistake at the end shook him into better sense. “Never laugh at live dragons, Bilbo you fool!” he said to himself, and it became a favourite saying of his later, and passed into a proverb.

Given the context behind this scene (Bilbo getting cocky and snubbing Smaug, only to be nearly burned in the process), I’d interpreted the expression as meaning “don’t get too cocky / overconfident, no matter how well you’re doing, or it’ll backfire on you” or something along those lines. But that’s only my interpretation, and whenever I try googling the phrase there doesn’t seem to be a consensus on what it means exactly.

So, Tolkien fans and non-fans alike, what are your thoughts on the meaning of this phrase?