How to calculate intrinsic value of a company?
Answers
So the intrinsic value is the net present value (NPV) of the sum of all future free cash flows (FCF) the company will generate during its existence. This intrinsic value reflects how much the business underlying the stock is actually worth if you would sell off the whole business and all of its assets. Value investors make money by buying good businesses at a price way below the intrinsic value.
The idea behind this is that in the short term the market often produces irrational prices, but in the long term the market will on average price the stocks correctly. So if you buy when the price is irrationally low and sell when the price approaches the intrinsic value (the correct price), you will earn market beating returns while taking less risk