The estimated true or fundamental value of a security based on analysis of its underlying business, cash flows, and growth prospects, independent of its current market price.
Intrinsic value is the cornerstone of value investing. If you estimate a stock's intrinsic value at $75 and it trades at $50, the $25 difference is your "margin of safety." The most common method for calculating intrinsic value is the discounted cash flow (DCF) model, which projects future cash flows and discounts them back to present value. Benjamin Graham taught investors to always buy with a margin of safety, meaning you should only purchase when the market price is significantly below your estimated intrinsic value. The challenge is that intrinsic value is inherently subjective and relies on assumptions about future growth and discount rates.