Intrinsic value is the theoretical true worth of a company based on its fundamental characteristics, such as assets, earnings, and growth potential. It is what an analyst believes a stock should be worth, in contrast to its current market price. Intrinsic value is subjective and depends on the assumptions and methods an analyst uses.
An analyst calculates that a company's future cash flows are worth $60 per share, so she determines the intrinsic value is $60. The stock currently trades at $45. This analyst would say the stock is undervalued by $15 per share. However, another analyst using different assumptions might calculate a different intrinsic value.
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