FactorSage

Intrinsic Value ยท Lesson 1.1

What is intrinsic value?

Intrinsic value is an estimate of what a business is worth based on the cash it can generate, not what the market is currently willing to pay for its shares.

A working definition

Intrinsic value is the present value of the cash a business is expected to generate for its owners, adjusted for risk. The market price is what the next buyer is willing to pay right now. Those two numbers are rarely equal, and that gap is the entire point of fundamental investing.

Why price and intrinsic value differ

Prices move on news, sentiment, flows, and short-term earnings surprises. Intrinsic value moves more slowly because it depends on cash flows, growth, margins, and the discount rate. Most of the time the two drift apart and then converge.

  • Sentiment swings can push prices well above or below a defensible valuation.
  • Estimates of intrinsic value depend on assumptions, so two analysts can land on different numbers using the same data.
  • A wide gap is not a guarantee. It is a starting point for further work.

How FactorSage uses intrinsic value

FactorSage computes intrinsic value per stock using six models: DCF, Owner Earnings, EPV, Residual Income, Graham, and Peter Lynch. Each model is available as an annual variant on every plan and as a TTM variant on Pro. You can use one model directly or combine several into a custom intrinsic value used by your strategy.

Open Strategies

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