Intrinsic Value Calculator
Intrinsic value is what a business is truly worth based on the cash it will generate — not what the market currently prices it at. When the market price falls significantly below intrinsic value, you have a potential buy opportunity with a built-in margin of safety.
What is intrinsic value?
Intrinsic value is the fundamental worth of a business, derived from its ability to generate future cash flows. Unlike market price — which reflects supply, demand, sentiment, and momentum — intrinsic value is anchored in the economics of the business itself.
The key insight of value investing: when market price is significantly below intrinsic value, you are buying a dollar of future earnings for less than a dollar today. Benjamin Graham called this gap the margin of safety — a buffer against errors in your assumptions and unpredictable events.
How to calculate intrinsic value — 4 methods
1. Discounted Cash Flow (DCF) — most rigorous
DCF is the gold standard for intrinsic value calculation. It projects a company's free cash flow forward 10 years, discounts each year's cash flow back to present value using WACC, adds a terminal value, subtracts net debt, and divides by shares outstanding.
Best for: profitable companies with stable, predictable free cash flow.
2. Graham Number — for value stocks
Benjamin Graham's formula provides a quick intrinsic value ceiling, particularly useful for traditional value stocks in financial and industrial sectors.
Best for: traditional value stocks — financial, industrial, and consumer staple companies.
3. Earnings Power Value (EPV)
EPV values a company based on its current, normalized earnings — with no growth assumed. It represents a conservative floor value: what the business is worth if it never grows again.
Best for: stable businesses with limited growth — utilities, mature consumer brands.
4. Asset-based valuation
For companies whose value lies primarily in what they own rather than what they earn, asset-based valuation calculates intrinsic value as the net asset value (NAV) — total assets minus total liabilities, adjusted to market value.
Best for: holding companies, real estate investment trusts (REITs), banks, and natural resource companies.
What inputs do you need for an intrinsic value calculator?
Common mistakes when calculating intrinsic value
Using too high a growth rate
The single biggest error in intrinsic value calculations. Assuming 25–30% annual growth indefinitely produces trillion-dollar valuations for mid-cap companies. Cap near-term growth at 30% and let it mean-revert to industry averages by years 6–10.
Ignoring terminal value sensitivity
Terminal value typically represents 60–80% of total intrinsic value. A 0.5% change in the terminal growth rate can move your output by 15–25%. Always stress-test with multiple terminal growth assumptions (1.5%, 2.5%, 3.5%).
Not running multiple scenarios
A single-point DCF estimate creates false precision. Professional analysts run Bear, Base, and Bull scenarios to show the range of reasonable outcomes — giving a distribution of intrinsic values rather than a single number.
Treating the output as precise, not a range
Intrinsic value is an estimate, not a fact. A well-built model produces a range — perhaps $85–$130 per share — not a single number like $107.43. If you're buying at $80, you have margin of safety across the full range. If you're buying at $120, you're only safe in the bull case.
How pocketDCF calculates intrinsic value
pocketDCF runs an institutional-grade 10-year, 3-stage DCF model automatically, pulling real financial data directly from regulatory filings.
- 10-year 3-stage DCF model: High growth (years 1–5), transition (years 6–8), mature growth (years 9–10) — with hyper-growth capped at 30%
- Blended with sector multiples: P/FCF for technology, EV/EBITDA for energy, P/Book for banks — weighted by FCF predictability
- Bear/Base/Bull scenarios: Statistical spread across pessimistic, expected, and optimistic growth trajectories
- AI risk scoring: Qualitative risk overlay on the quantitative DCF — flagging leverage, moat strength, and sector headwinds
Frequently asked questions
What is intrinsic value of a stock?+
Intrinsic value is what a stock is fundamentally worth based on the company's ability to generate cash in the future, independent of its current market price. When market price is significantly below intrinsic value, a stock may be undervalued — this gap is called the margin of safety.
How do you calculate the intrinsic value of a stock?+
The most rigorous method is DCF (Discounted Cash Flow): project 10 years of free cash flows, discount them back to today using WACC (7–12%), add the terminal value (Gordon Growth Model or exit multiple), subtract net debt, and divide by shares outstanding. pocketDCF does this automatically for any US stock.
What is a good margin of safety for intrinsic value?+
Benjamin Graham recommended buying at 33–50% below intrinsic value. In practice, most value investors look for at least 20–30% margin of safety to account for modeling errors and unexpected events. The larger the uncertainty about future cash flows, the wider the margin of safety you need.
What discount rate should I use in an intrinsic value calculator?+
Use WACC (Weighted Average Cost of Capital) as your discount rate. For most large US companies, WACC ranges from 7% to 12%. Stable mega-cap companies (Apple, Microsoft) use the lower end (8–9%); smaller or riskier companies use the higher end (10–12%).
What is terminal value and why does it matter?+
Terminal value represents all cash flows beyond your projection period (typically year 10 onward). It usually accounts for 60–80% of total intrinsic value in a DCF model. Because it dominates the output, small changes in terminal growth rate assumptions (e.g., 2% vs. 3%) can shift intrinsic value by 20–30%.
What is the Graham Number formula for intrinsic value?+
The Graham Number is √(22.5 × EPS × Book Value per Share). It provides a quick intrinsic value ceiling for traditional value stocks in financial and industrial sectors. It's a blunt instrument — it ignores growth and cash flow quality — but useful as a sanity check.
Is intrinsic value the same as fair value?+
Intrinsic value and fair value are often used interchangeably. Technically, intrinsic value is derived from fundamental analysis (DCF), while fair value can also incorporate market comparables like P/E or EV/EBITDA multiples. For practical investing, both mean: what the stock is worth based on reasoned analysis, not market sentiment.
How accurate is a DCF intrinsic value calculator?+
DCF accuracy depends heavily on input quality. Growth rate and WACC assumptions drive most of the output. Professional analysts treat intrinsic value as a range — a Bear/Base/Bull scenario — rather than a single number. A stock priced at $80 with a Base intrinsic value of $120 and a Bear value of $90 still offers meaningful margin of safety.
What if a stock's market price is above its intrinsic value?+
If market price significantly exceeds intrinsic value, the stock may be overvalued — you'd be paying more than the business is fundamentally worth. This doesn't guarantee the price will fall (momentum can sustain overvaluation for years), but it shrinks your margin of safety and increases downside risk.
What is the difference between intrinsic value and book value?+
Book value (net assets on the balance sheet) is an accounting measure of what shareholders own. Intrinsic value is a forward-looking economic measure of what the business can earn. For most profitable companies, intrinsic value is substantially higher than book value because it captures future earnings power.