What is Intrinsic Value?

So, what is intrinsic value and how do we calculate it?

Intrinsic value is a proposed fair value based on the financial situation of the company.  

The company’s stock is expected to trade towards the intrinsic value so if you determine that the intrinsic value is above the share price, the stock you are studying is considered to be undervalued and if the intrinsic value is below the share price then the stock is considered to be overvalued.

As value investors, it’s important to calculate the correct intrinsic value for each stock as there are many ways of calculating the intrinsic value.  The projected FCF (free cash flow) model is one way of calculating the intrinsic value.  How we calculate it is displayed in the video above if you’re interested.

Assets, debt, income, and other factors are taken into account in many intrinsic values.  You can also make your own way of calculating the intrinsic value which in my opinion is the best because you understand it the most.