Intrinsic Value

Intrinsic value represents the true underlying worth of a company based on objective analysis of its fundamentals. It is the value a rational investor would place on the business based on its assets, earnings power, and growth prospects, independent of current market sentiment.

The term is often used interchangeably with fair value. Both concepts aim to answer the same question: what is this business actually worth, regardless of what the market currently says?

Calculating Intrinsic Value

Intrinsic value is typically calculated through discounted cash flow analysis, which values the company based on projected future cash flows discounted to present value. Other methods include asset-based valuation, earnings power value, and relative valuation against peers.

Because intrinsic value depends on assumptions about the future, different analysts may arrive at different estimates. This is why Fair Price Index uses a blended model combining multiple methodologies to reduce the impact of any single method's limitations.

The gap between intrinsic value and market price creates investment opportunities. When market price is below intrinsic value, the stock may be a buying opportunity. When market price exceeds intrinsic value, the stock may be overvalued.