What does Intrinsic Value of a stock refer to?

The Intrinsic Value is its true value. Calculated on the basis of the profits you expect to receive from a stock in the future, it is the maximum value at which you can buy the asset without making a loss in the future when you sell it. For accuracy, this value is adjusted for factors such as inflation and various kinds of risks.

For example, suppose you own a flat and you hold it for 10 years. Nobody wants to pay more for than you can possibly earn from an asset. In other words, the intrinsic value of that asset is:

Intrinsic value = Total rent earned in 10 years + Selling price you may receive after ten years

It is calculates based on a company's fundamentals as of today, which in turn are an estimate based on your own calculations. Hence, it is a hypothetical figure. This is not dependable. Events in the future may change these fundamentals dramatically.


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