When assessing a stock for long-term investment, understanding its intrinsic value is essential. Intrinsic value, often called the "true" or "fair" value, is the estimated worth of a company based on comprehensive financial analysis. When a stock’s current market price (CMP) is below its intrinsic value, it’s seen as undervalued and could be a strong buy opportunity. Conversely, if a stock trades above its intrinsic value, it may be overvalued, indicating a potential sell
However, calculating intrinsic value is not straightforward—it involves complex financial modeling that many investors may find challenging. Take ITC (NS:ITC) Limited, for instance. With a CMP of INR 478, determining ITC's intrinsic value would typically require rigorous calculations, using financial models that factor in various assumptions and forecasts.
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This is where InvestingPro+ becomes a valuable tool. Instead of manually calculating intrinsic values, InvestingPro+ performs the analysis automatically using 14 distinct financial models. These models include the 5-year Discounted Cash Flow (DCF) Revenue Exit, Price-to-Earnings (P/E) Multiple, and Enterprise Value/EBIT (EV/EBIT), each generating unique intrinsic values based on different financial assumptions and data sets.
With multiple intrinsic values produced by these models, the question arises: which value should an investor rely on? A simple but effective approach is to average these values, which InvestingPro+ provides as the “Fair Value.” This fair value represents a balanced, more realistic estimate of the stock’s worth by reducing potential model-specific biases.
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Using this fair value feature, an investor looking at ITC would find that its fair value is around INR 429.6, signaling a potential overvaluation at its current price of INR 478. This suggests a possible 10.1% downside before the stock aligns with its fair value, which may prompt an investor to consider holding or selling the stock. On the flip side, if the CMP were below the fair value, it might indicate a buying opportunity due to potential upside.
By simplifying intrinsic value calculations, InvestingPro+ empowers investors with actionable insights, helping them make informed buy, hold, or sell decisions based on fair value analysis, whether a stock is overvalued or undervalued.
But the bigger news is - InvestingPro+/Pro are now available at a mouth-watering discount of up to 55% in the ongoing Black Friday Sale!
Read More: Fair Value Helped Investors Secure an Easy-Peasy 37% Gain!
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