The intrinsic value of a share is the estimated true economic value of an equity share — derived through fundamental analysis of the company's expected future cash flows, assets, earnings power, competitive position, and growth prospects — independent of its current market price. When the intrinsic value exceeds the current market price, the stock is considered undervalued (a potential buy opportunity); when market price exceeds intrinsic value, the stock is considered overvalued (a potential sell signal). Intrinsic value is most commonly calculated using the Discounted Cash Flow (DCF) model — projecting future free cash flows and discounting them at the Weighted Average Cost of Capital (WACC). Alternative intrinsic value approaches include the Dividend Discount Model (DDM — for dividend-paying blue-chip companies), asset-based valuation (for asset-heavy or liquidation scenarios), and sum-of-parts valuation (for conglomerates with multiple business segments). The concept of intrinsic value is central to value investing — popularised by Benjamin Graham and Warren Buffett — which advocates buying securities trading significantly below their intrinsic value (with a 'margin of safety') to generate superior long-term returns while limiting downside risk. In Indian equity markets, discrepancies between market price and intrinsic value are more prevalent in the mid-cap and small-cap segments where analyst coverage is thinner and institutional ownership is lower, creating opportunities for diligent fundamental investors to identify mispriced securities.
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