What is intrinsic value of a stock?

Intrinsic value is the true or fundamental worth of a stock based on its underlying financial performance, independent of its current market price. It represents what the stock should be worth based on factors like earnings, cash flows, growth potential, and risk. Value investors buy stocks when the market price is below intrinsic value (undervalued) and sell when it exceeds intrinsic value (overvalued).

What is Benjamin Graham's intrinsic value formula?

Benjamin Graham's intrinsic value formula from 'The Intelligent Investor' is: V = EPS × (8.5 + 2g) × (4.4/Y), where V is intrinsic value, EPS is current earnings per share, g is expected 5-year growth rate, 8.5 is the P/E base for a no-growth company, and Y is the current AAA corporate bond yield. The 4.4 represents the average bond yield when Graham wrote the formula, serving as a normalization factor.

What is a good margin of safety when buying stocks?

Benjamin Graham and Warren Buffett recommend a margin of safety of 20-30% when buying stocks. This means buying a stock only when its market price is 20-30% below its calculated intrinsic value. For example, if a stock's intrinsic value is $100, you would buy it only at $70-80. This buffer protects against calculation errors and unforeseen events. Higher-risk stocks warrant larger margins of safety (30-50%).

How do I calculate intrinsic value in Excel?

For Graham Formula in Excel: =EPS*(8.5+2*GrowthRate)*(4.4/BondYield). For simplified DCF: Use NPV function: =NPV(DiscountRate, FCF1:FCF5) + TerminalValue/(1+DiscountRate)^5. Terminal Value = Last FCF * (1+TerminalGrowth) / (DiscountRate - TerminalGrowth). Example: If FCF=$5, growth=10%, WACC=10%, terminal growth=2.5%: Year 1-5 FCFs discounted + Terminal Value gives intrinsic value per share.

What is the difference between intrinsic value and book value?

Book value is an accounting measure = Total Assets - Total Liabilities, representing historical cost of net assets. Intrinsic value is forward-looking, based on expected future cash flows and earnings potential. Book value ignores intangibles like brand value, intellectual property, and growth prospects. A company like Apple has intrinsic value far exceeding book value due to its brand and future earnings power. Book value is useful for asset-heavy industries; intrinsic value is better for evaluating operating businesses.

How accurate is DCF valuation?

DCF accuracy depends heavily on input assumptions—small changes in growth rate or discount rate cause large valuation swings. Studies show DCF valuations can vary 20-50% based on reasonable assumption changes. DCF works best for: 1) Stable, predictable businesses, 2) Companies with positive cash flows, 3) Long-term investment horizons. Use sensitivity analysis to test different scenarios. DCF should be one of multiple valuation methods, not the sole decision factor. Combine with relative valuation (P/E, EV/EBITDA) for better accuracy.

Intrinsic Value Calculator

Calculate a stock's true worth using DCF (Discounted Cash Flow) and Benjamin Graham's formula

What is Intrinsic Value?

Intrinsic value is what a stock is actually worth based on its fundamentals (earnings, cash flow, growth) — independent of its current market price. If the intrinsic value is higher than the market price, the stock may be undervalued (a potential buy). If it's lower, the stock may be overvalued.

This concept was popularized by Benjamin Graham (the "father of value investing") and his student Warren Buffett.

How to use this calculator:

1 Select a Valuation Method below (we explain each method when you select it)

2 Enter the financial data for the stock you want to analyze (each field has a detailed explanation)

3 Enter the Current Stock Price to see if it's undervalued or overvalued based on your inputs

Choose Valuation Method

Benjamin Graham Formula: A simple formula from "The Intelligent Investor" that estimates intrinsic value using EPS (Earnings Per Share) and expected growth rate. Best for stable, profitable companies. Easiest method for beginners.

Graham Formula Inputs

EPS — Earnings Per Share ($)

What is EPS? Net income divided by shares outstanding. It shows how much profit the company makes per share. Find it on Yahoo Finance under "Statistics" → "EPS (TTM)".

Expected Growth Rate (%)

What is this? How fast you expect the company's earnings to grow annually over the next 5-7 years. Use analyst estimates or past growth (CAGR). Typical range: 5-15% for stable companies.

AAA Corporate Bond Yield (%)

What is this? The interest rate on highest-quality corporate bonds. Graham used 4.4% in his era. Current rates are typically 4.5-6%. This adjusts the formula for today's interest rate environment.

Current Stock Price ($)

What is this? The stock's current market price. We use this to compare against the calculated intrinsic value to see if the stock is undervalued or overvalued.

DCF (Discounted Cash Flow) Simplified Inputs

FCF — Free Cash Flow Per Share ($)

What is FCF? The cash a company generates after paying for operations and equipment. FCF = Operating Cash Flow - Capital Expenditures. Find it on Yahoo Finance: Financials → Cash Flow. Divide total FCF by shares outstanding.

FCF Growth Rate (%)

What is this? How fast you expect the company's free cash flow to grow each year during the projection period. Higher growth = higher intrinsic value. Be conservative—overestimating leads to overvaluation.

Terminal Growth Rate (%)

What is this? The long-term perpetual growth rate after the projection period ends. Should not exceed GDP growth (2-3%). Most analysts use 2-3%. Higher values dramatically increase valuation.

WACC — Discount Rate (%)

What is WACC? Weighted Average Cost of Capital — the minimum return investors expect. It "discounts" future cash to today's value. Higher WACC = lower intrinsic value. Typical range: 8-12%. Use 10% if unsure.

Projection Period (Years)

What is this? How many years to project cash flows before calculating the "terminal value" (perpetual value beyond this period). Standard is 5 years. Longer projections are less reliable.

Current Stock Price ($)

What is this? The stock's current market price. Used to compare against calculated intrinsic value and determine margin of safety.

DCF Advanced (Multi-Stage) Inputs

Multi-Stage DCF is more realistic for growth companies. It assumes high growth early on, followed by declining growth as the company matures.

Current FCF Per Share ($)

Free Cash Flow per share. Find it: Yahoo Finance → Financials → Cash Flow → "Free Cash Flow" ÷ shares outstanding.

WACC — Discount Rate (%)

WACC = Weighted Average Cost of Capital. The rate used to discount future cash to present value. Default 10% is a good starting point.

Stage 1: High Growth Phase — Rapid expansion period

Stage 1 Growth Rate (%)

Annual FCF growth during the high-growth phase. Tech companies might see 20-30%, mature companies 10-15%.

Stage 1 Duration (Years)

How long will high growth last? Typically 3-5 years. High growth can't last forever—competition catches up.

Stage 2: Transition Phase — Growth slows as market matures

Stage 2 Growth Rate (%)

Moderate growth as the company matures. Typically lower than Stage 1. 8-15% is common for this phase.

Stage 2 Duration (Years)

Duration of the transition period. Together with Stage 1, the total projection period is usually 7-10 years.

Stage 3: Terminal (Perpetuity) — Stable, forever growth

Terminal Growth Rate (%)

The perpetual growth rate after Stage 2. Must be below GDP growth (~2-3%). This value significantly impacts the result.

Current Stock Price ($)

The stock's current market price for comparison against calculated intrinsic value.

Enter values above and click Calculate Intrinsic Value to see results

Does this stock pay dividends?

For dividend-paying stocks like JNJ, KO, or PG, use our DDM Calculator for dividend-based valuation.

DDM Calculator

What is Intrinsic Value?

Intrinsic value is the true or fundamental worth of a stock based on its underlying financial performance, independent of its current market price. The concept was popularized by Benjamin Graham, the father of value investing, and later refined by his student Warren Buffett.

The core principle is simple: a stock is worth the present value of all the cash it will generate for shareholders in the future. If the market price is below intrinsic value, the stock is undervalued and represents a buying opportunity. If it's above, the stock is overvalued.

This calculator offers three valuation methods: the Benjamin Graham Formula (simple and conservative), Simplified DCF (discounted cash flow for intermediate users), and Advanced Multi-Stage DCF (for detailed analysis with multiple growth phases).

Intrinsic Value Formulas

Benjamin Graham Formula

V = EPS × (8.5 + 2g) × (4.4 / Y)

V = Intrinsic value per share
EPS = Current earnings per share (TTM)
8.5 = Base P/E for a no-growth company
g = Expected annual growth rate (%)
4.4 = Average AAA bond yield when Graham wrote the formula
Y = Current AAA corporate bond yield (%)

Discounted Cash Flow (DCF)

V = Σ(FCF × (1+g)ᵗ / (1+r)ᵗ) + Terminal Value / (1+r)ⁿ

FCF = Free cash flow per share
g = Growth rate during projection period
r = Discount rate (WACC)
Terminal Value = FCFₙ × (1+g_terminal) / (r - g_terminal)
n = Number of projection years

Margin of Safety

Margin of Safety = (Intrinsic Value - Market Price) / Intrinsic Value × 100%

Graham and Buffett recommend buying only when margin of safety is 20-30% or higher to protect against estimation errors.

Excel Formulas

Calculation	Excel Formula
Graham Formula	`=A1(8.5+2B1)*(4.4/C1)` A1=EPS, B1=Growth Rate, C1=Bond Yield
DCF (5-year)	`=NPV(B1,C1:G1)+H1/(1+B1)^5` B1=Discount Rate, C1:G1=Projected FCFs, H1=Terminal Value
Terminal Value	`=A1*(1+B1)/(C1-B1)` A1=Final Year FCF, B1=Terminal Growth, C1=Discount Rate
Margin of Safety	`=(A1-B1)/A1` A1=Intrinsic Value, B1=Current Price

When to Use Each Method

Graham Formula

Best for:

Stable, profitable companies
Predictable earnings growth
Value investing screening
Quick "back of envelope" valuation
Beginners learning valuation

DCF Simplified

Best for:

Cash-generating companies
Moderate growth businesses
Steady-state projections
Comparing multiple stocks
Intermediate investors

DCF Advanced

Best for:

High-growth tech companies
Companies with changing dynamics
Detailed scenario analysis
Professional-level valuation
M&A and investment banking

Frequently Asked Questions

Intrinsic value is the true or fundamental worth of a stock based on its underlying financial performance, independent of its current market price. It represents what the stock should be worth based on earnings, cash flows, growth potential, and risk. Value investors buy stocks when market price is below intrinsic value (undervalued) and avoid or sell when it exceeds intrinsic value (overvalued).

The DCF method calculates intrinsic value by: 1) Projecting future free cash flows for 5-10 years, 2) Calculating a terminal value for cash flows beyond the projection period, 3) Discounting all cash flows back to present value using WACC (typically 8-12%), 4) Summing the present values. The formula is: V = Σ(FCF × (1+g)^t / (1+r)^t) + Terminal Value / (1+r)^n.

Benjamin Graham's intrinsic value formula from "The Intelligent Investor" is: V = EPS × (8.5 + 2g) × (4.4/Y), where V is intrinsic value, EPS is current earnings per share, g is expected 5-year growth rate, 8.5 is the P/E for a no-growth company, and Y is the current AAA corporate bond yield. The 4.4 represents the average bond yield when Graham wrote the formula.

Benjamin Graham and Warren Buffett recommend a margin of safety of 20-30% when buying stocks. This means buying only when market price is 20-30% below calculated intrinsic value. For example, if intrinsic value is $100, buy only at $70-80. Higher-risk stocks warrant larger margins (30-50%). This buffer protects against calculation errors and unforeseen events.

For DCF valuation, use WACC (Weighted Average Cost of Capital), typically ranging from 8-12%. Approaches: 1) Use 10% as a general benchmark (historical market return), 2) Calculate WACC based on company's debt/equity mix, 3) Use CAPM for cost of equity. Higher discount rates for riskier companies (small caps, tech), lower for stable blue chips (utilities, consumer staples).

For Graham Formula: =EPS*(8.5+2*GrowthRate)*(4.4/BondYield). For DCF: Use NPV function: =NPV(DiscountRate, FCF1:FCF5) + TerminalValue/(1+DiscountRate)^5. Terminal Value formula: =LastFCF*(1+TerminalGrowth)/(DiscountRate-TerminalGrowth). Always ensure discount rate exceeds terminal growth rate.

Book value is an accounting measure (Total Assets - Total Liabilities), representing historical cost of net assets. Intrinsic value is forward-looking, based on expected future cash flows and earnings potential. Book value ignores intangibles like brand value and growth prospects. Apple's intrinsic value far exceeds book value due to its brand and earning power.

Yes, intrinsic value can theoretically be negative if a company has negative earnings or cash flows with no realistic path to profitability. However, in practice, a stock's intrinsic value has a floor of zero since shareholders have limited liability. If DCF produces negative value, the company may be worthless as a going concern.

WACC (Weighted Average Cost of Capital) represents a company's blended cost of financing. Formula: WACC = (E/V × Re) + (D/V × Rd × (1-T)), where E=equity value, D=debt value, V=total value, Re=cost of equity, Rd=cost of debt, T=tax rate. In DCF, WACC is the discount rate that converts future cash flows to present value.

DCF accuracy depends heavily on input assumptions—small changes in growth rate or discount rate cause large valuation swings. Studies show DCF valuations can vary 20-50% based on reasonable assumption changes. DCF works best for stable, predictable businesses. Use sensitivity analysis to test scenarios. Combine DCF with relative valuation (P/E, EV/EBITDA) for better accuracy.

Disclaimer: This calculator is for educational and informational purposes only. Intrinsic value calculations are highly sensitive to input assumptions and should not be the sole basis for investment decisions. Past performance and historical growth rates do not guarantee future results. Stock prices can decline regardless of intrinsic value calculations. Always conduct thorough due diligence and consider consulting a financial advisor before making investment decisions.

Intrinsic Value Calculator

What is Intrinsic Value?

Understanding Your Results

DCF Breakdown

Valuation Comparison

Sensitivity Analysis

Does this stock pay dividends?

What is Intrinsic Value?

Intrinsic Value Formulas

Benjamin Graham Formula

Discounted Cash Flow (DCF)

Margin of Safety

Excel Formulas

When to Use Each Method

Graham Formula

DCF Simplified

DCF Advanced

Frequently Asked Questions

Try Our AI-Powered Apps

Intrinsic Value Calculator

What is Intrinsic Value?

Understanding Your Results

DCF Breakdown

Valuation Comparison

Sensitivity Analysis

Does this stock pay dividends?

What is Intrinsic Value?

Intrinsic Value Formulas

Benjamin Graham Formula

Discounted Cash Flow (DCF)

Margin of Safety

Excel Formulas

When to Use Each Method

Graham Formula

DCF Simplified

DCF Advanced

Frequently Asked Questions

What is intrinsic value of a stock?

How do you calculate intrinsic value using the DCF method?

What is Benjamin Graham's intrinsic value formula?

What is a good margin of safety when buying stocks?

What discount rate should I use for DCF?

How do I calculate intrinsic value in Excel?

What is the difference between intrinsic value and book value?

Can intrinsic value be negative?

What is WACC and how is it used in DCF?

How accurate is DCF valuation?

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