What is Intrinsic Value?
💡 Intrinsic value = what a stock is ACTUALLY worth, based on the company's earnings and assets. Think of it as the "fair price."
The sneaker analogy 👟
Imagine a pair of sneakers. The retail price is $120 (that's the stock price). But if you look at the materials, labor, and brand value, maybe they're really worth $80 (intrinsic value).
- Paying $120 for $80 sneakers = Overvalued stockYou're overpaying. Might go down.
- Paying $60 for $80 sneakers = Undervalued stockYou're getting a deal. Might go up.
- Paying $80 for $80 sneakers = Fair valueYou're paying exactly what it's worth.
How is intrinsic value calculated?
There are several methods. The basic idea behind all of them:
How much money will this company make in the future?
Then discount it back to today's value.
We use 5 different methods and average them:
Important: It's an estimate, not a fact
Intrinsic value is like appraising a house — different people get different numbers. It's a useful guide, but not an exact answer. The stock market is driven by emotions, hype, and news — not just math.
Key takeaway
Intrinsic value helps you answer: "Am I paying too much for this stock?" If the stock price is way above intrinsic value, it might be overpriced. If it's below, it might be a deal.