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How To Find The Intrinsic Value Of A Share/Stock? (#14)

 



Well you cannot do Value Investing without calculating the Intrinsic Value of a share.

So today let's figure out how do you calculate the Intrinsic Value of a share.

Calculating the Intrinsic Value of a share is a vital part of doing Value Investing!

Well, is any of you sick of that formula which many you might have came across multiple times but are always unable to understand what purpose do certain field's have/what purpose do they carry & all & all.
I won't say that this blog does not have that formula OR I have another way to find the Intrinsic Value. Well the formula & the way is the same, here!
But don't be disappointed! I'll let you know how to fill certain field's & take out the intrinsic value of a share!
Well, I really have came across the same where I was completely clueless of what does this formula means & it really seemed very much difficult & complex to me at first but I finally, somehow managed to understand that & by the end of reading this article/blog so will you!

Note— Information provided here might not be 100% accurate! I do not recommend anyone anything at all!
Anyone following this will be responsible for everything him/her self!

Benjamin Graham who is the writer of the famous book "The Intelligent Investor"! has mentioned a formula for calculating the Intrinsic Value.

Before I began I'll like to remind y'all that finding the Intrinsic Value of a share is just a PART of Value Investing not the entire process.... It's not like if any company's share is below its intrinsic value, then you should buy it.... you must be sure about that company & most important you must make sure that you invest in a business you understand!
I just want to say that I won't be responsible for any of the investments y'all may make!
I am here just to make y'all familiar with a Concept!

--Ok! Enough for a Disclaimer!
Back To The Topic!

The formula to calculate the Intrinsic Value of a share is :
[EPS×(8.5+2g)×4.4]/Y

I know! It seems very complex right now!
Don't worry I'll break it down....!
& then I'll take out the Intrinsic Value of a share as an example in front of y'all in order to make it more clear.
Ok!
So,
Within the formula:
EPS = Earnings Per Share
g = estimated growth rate of a specific company for a specific year (time)
Y = AAA Corporate Bond Yield

Well I know I just told y'all what do one stands for!
Now, how will you know what to write in their places!
Well, for this you can use a Stock Screener!
I am using Trading View!
Trding View is a Global Stock Screener & the best I've came across to this day!
#NO SPONSORS!

Anyways, so, now, I'm gonna take out the Intrinsic Value of RELIANCE!

Ok!
EPS×(8.5+2g)×4.4/Y
So here we need to fill 3 fields....
EPS , g & Y.

So as I said I'm gonna use the Stock Screener— Trading View.
So these are the results I've obtained from Trading View!



Reliance is highlighted to let y'all understand about it in every section!


There's a section called "LAST". It basically represents the price of Reliance's Share the last time the Market was Open! Which is of ₹2,368.
[BTW, It's September 14, 2021. Tuesday, Today!]



(Reliance is highlighted)!

EPS = 75.00




(Reliance is highlighted!)

YTD/g = 19.30


So from here I've obtained the value of the 2 fields which were required (EPS, g).
& now the one left (Y) is what we can find on Google.


Google Search—> "What is the aaa bond yield of India?"

Y = 8.3


So with this we've obtained the value of all the 3 sections which were required....
EPS = 75.00
g = 19.30
Y = 8.3

So now without any further delay let's calculate the result!

75×(8.5+2×19.30)×4.4/8.3

The reason I straight away pasted an image of the calculator is to make y'all sure that the calculation is not wrong!
Anyways!

The Intrinsic Value of Reliance is ₹1,872.
While the current share price of Reliance is ₹2,368.

Instrinsic Value = 1,872
Current Price = 2,368
Hence, the share of Reliance is now overvalued!


So this is how you can take out any company's share's Intrinsic Value.

But I'm not sure if this is correct or not.
I myself have followed the formula & the result I've obtained is in front of you!

But Remember, Finding The Intrinsic Value Of A Share/Stock is just a PART of Value Investing.
You must check & research more & know more about the Business Model & the Company.

*Information provided here may not be 100% accurate!*

So I hope you now might have an idea of how does this formula to find the Intrinsic Value, works!

Thanks For Reading!
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