Estimating the stock intrinsic value is the cornerstone of value investing. This calculator uses a multi-stage Discounted Cash Flow (DCF) model to help you determine if a stock is undervalued or overvalued based on earnings growth, discount rates, and terminal value.
Stock Intrinsic Value Calculator
Stock Intrinsic Value Formula
The calculation uses a 10-year Discounted Cash Flow (DCF) approach:
Where TV (Terminal Value) = [CF10 * (1+g_term)] / (r – g_term)
Source: Investopedia – Intrinsic Value Definition
Variables Explained:
- EPS (Earnings Per Share): The portion of a company’s profit allocated to each outstanding share.
- Growth Rate: The percentage increase in earnings you expect over the next decade.
- Discount Rate: Your required annual return (often the WACC or a hurdle rate like 10%).
- Terminal Growth: The perpetual growth rate after year 10 (usually matches long-term inflation or GDP growth).
What is Stock Intrinsic Value?
Intrinsic value is a measure of what an asset is worth. This measure is arrived at by means of an objective calculation or complex financial model, rather than using the currently trading market price of that asset.
In stock analysis, it represents the present value of all future cash flows the business will generate, discounted back to today’s dollars. If the market price is lower than the intrinsic value, the stock is considered “undervalued.”
How to Calculate Stock Intrinsic Value (Example)
- Start with the current trailing 12-month EPS (e.g., $5.00).
- Project the EPS for the next 10 years using an expected growth rate (e.g., 12%).
- Discount each year’s EPS back to the present using your discount rate (e.g., 10%).
- Calculate the Terminal Value at year 10 using the Gordon Growth Model.
- Sum all discounted EPS and the discounted Terminal Value to find the intrinsic value.
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Frequently Asked Questions (FAQ)
What is a good discount rate to use? Most investors use between 8% and 12%, depending on the risk of the company and current interest rates.
Can intrinsic value be negative? Theoretically, no. If a company burns cash indefinitely, its value is essentially zero or liquidation value.
Why is terminal growth usually low? Because a company cannot grow faster than the overall economy forever; usually, 2%–3% is appropriate.
Does this include debt? This specific EPS-based DCF focuses on equity value per share directly. For Enterprise Value, use a Free Cash Flow to Firm (FCFF) model.