Definition
Intrinsic value is the present value of all future cash flows an asset is expected to generate. Unlike market price (determined by supply and demand), intrinsic value is estimated through fundamental analysis. The gap between intrinsic value and market price creates investment opportunities—buy when market price is below intrinsic value.
lightbulb Example
A thorough analysis estimates Company X's intrinsic value at $75/share through DCF ($72), DDM ($78), and comps ($74). Stock trades at $55, a 27% discount, presenting a potential buying opportunity with adequate margin of safety.
verified_user Key Points
- Estimated through fundamental analysis
- Multiple methods should converge on similar value
- Buy when market price < intrinsic value
- Intrinsic value is always an estimate, not a precise figure