What is Intrinsic Value?
The estimated true value of a business based on fundamentals, independent of market price.
Formal Definition
Intrinsic value is the present value of a company's expected future cash flows to owners, discounted at a rate reflecting risk. Analysts derive different estimates because they assume different growth, margins, and discount rates. It is the anchor of value investing and the benchmark against which market price is judged cheap or expensive.
In Simple Terms
It is what a business is genuinely worth based on the cash it will produce, regardless of today's stock price. If the market price is far below it, the stock may be a bargain.
Example
A discounted cash flow model that produces $150 per share when the stock trades at $120 implies a 20% margin of safety.