How do you determine the intrinsic value of a stock?

Question

I hear a lot about some stocks being traded at below their intrinsic value and being good value stocks. But how do you determine the intrinsic value? Most websites won't even have the intrinsic value listed.

Answer 1

Warren Buffett talks about the intrinsic value of a company. He defines it as the sum of the total cash flows expected to come from the company, discounted at an appropriate interest rate. Buffett uses the rate of the long-term U.S. bond (10 years). He uses the discounted cash flow formula when adding up the cash flows to determine the intrinsic value. Since he wants a company that will last at least ten years, trying to forecast earnings that far ahead is difficult, but he's become very good at it. Once he's added up the totals, and has his value, he buys the company when it's at a 25% discount (or more, obviously).

There are other things he wants as well, such as at least 12% ROE, low debt/equity, good profit margins and earnings growth, but the intrinsic value is the most difficult to determine, bc it involves the value of a brand name or a patent, as well as adding up values that aren't real values yet (they're projected values).

I've been trying to do this on my own, and I've been using the earnings growth rate for the past five years to get an earnings number for years after the furthest projection.

http://www.investopedia.com/articles/01/071801.asp

There's an article with some info. Also, do a search for "Warren Buffett criteria" to get the numbers I gave above and any other details you may want.

Answer 2

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Answer 3

So..
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Regards

Answer 4

The stock price and its intrinsic value does eventually converge, but this could take years. Think about the internet stock bubble. From the first run up to the final crash, it tool almost 4-5 years. The best book that explains all this is "Random Walk Down Wall Street" by Malkiel.

Answer 5

Intrinsic to me means that it is a common trading price.
We would say Gold is at 302.00 intrinsic because it was a
popular price. Intrinsic is also used by heavy hits on your
economic stability, such as when gold IS at 302. when you
buy ten pounds, so if you were to buy now you would get the
severe loss, because the common delivered market load is
active, and you pay up to 20 % off. These write ups are also
common around intrinsic talk, You may want to get a broker
that likes you to make strong profit.

Answer 6

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