Intrinsic Value

What is Intrinsic Value? — Definition

Intrinsic value is central to value investing. It represents what a company is objectively worth based on its ability to generate future cash flows, discounted to today's dollars. Unlike market price — which reflects what buyers and sellers agree on in real time — intrinsic value is a considered estimate of fundamental worth.

Benjamin Graham, the father of value investing, described intrinsic value as what a well-informed buyer would pay for the entire business in a private transaction. Warren Buffett has refined this: 'Intrinsic value is the discounted value of the cash that can be taken out of a business during its remaining life.'

Example

A company with $50M in annual free cash flow, growing at 10% per year, with a 9% discount rate and a 3% terminal growth rate might have an intrinsic value of approximately $1.25 billion. If its market cap is $800 million, it's trading at a 36% discount to intrinsic value.

Every report in BMInsider's 100X Insider Reports includes a calculated intrinsic value range, giving subscribers a concrete framework for deciding whether a stock is worth owning at its current price.