Intrinsic Value is the estimated true or underlying value of an asset based on its fundamentals, rather than its current market price.
For a company, investors may estimate intrinsic value by looking at factors such as future cash flows, earnings, growth prospects, assets, and risk.
Simple example:
If a stock is trading at ETB 80 but your analysis suggests its intrinsic value is ETB 100, the stock may be considered undervalued.
- Market Price < Intrinsic Value → Potentially undervalued 📈
- Market Price > Intrinsic Value → Potentially overvalued 📉
- Market Price ≈ Intrinsic Value → Potentially fairly valued
Intrinsic value helps investors look beyond today’s price and assess what an investment may actually be worth based on its fundamentals.