Making It Easy: Calculating Intrinsic Values

Calculating the intrinsic value of stocks is probably one of the most important things to do in value investing and one of the most complicated.  The math is tedious, digging around for information takes time, and there are just too many companies out there to try to get through all those calculations.  That’s why we decided that building an Intrinsic Stock Value Calculator was one of the first things we would do.

The Intrinsic Stock Value Calculator is designed to look up basic information about the stock and allow you to fill in a few values yourself to get an idea of whether the stock is worth continuing to research. Here’s what our calculator looks like:

From typing in values into our calculator there are 3 outcomes that can happen.

1. You find that the company’s stock is trading below it’s intrinsic value
   That will be a good indication that it may very well be a good investment. But before you go all in it will be a good idea to do your due diligence and read through the company’s investment documents such as the annual reports, strategy for growth, and other financial statements and disclosures.

2. The stock is trading above it’s intrinsic value
   If you’re in this scenario it could mean that the stock is not one that would be considered a good investment if you’re sticking to your value investor principles. It could also mean that you typed in a wrong value, or your assumptions about the future growth of the company’s Free Cash Flow are off so it always helps to double check what you entered. The goal of the Intrinsic Stock Value Calculator is to help you to quickly exclude certain stocks if the assumptions required to make it worthwhile are unrealistic.

3. The stock is trading close to it’s intrinsic value
   This third scenario is one where the intrinsic value may be slightly off the current stock price and you’re not sure what to do. If a company’s stock is a bit above it’s intrinsic value, or the margin of safety is small, then that would indicate that it may not be the right time to invest in that stock, but it would certainly be worth keeping an eye on it to see if the stock price drops and its basic fundamentals are strong.

The Intrinsic Stock Value Calculator is intended to be a tool to allow you to focus your time on doing the research that will be the most fruitful for you. It should be used at the start of your research to screen out poor quality stocks from the beginning and it should also be used when you learn more about the company and you can make more realistic projections around free cash flow, growth rates, and it’s inherent level of risk. Click here to give the calculator a test run now.