Estimate a stock's intrinsic value by projecting earnings growth, applying a terminal P/E multiple, and discounting back to present value.
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Equity Valuation
Intrinsic value is the estimated true worth of a stock based on projected future earnings, independent of its current market price. This calculator uses an earnings growth model to project future EPS, apply a terminal P/E multiple, and discount back to present value.
Intrinsic value attempts to answer: what is this stock actually worth? If the market price is below intrinsic value, the stock may be undervalued. If above, it may be overvalued.
Unlike market price (which reflects supply and demand), intrinsic value is derived from fundamental analysis — the company's earnings power, growth prospects, and the investor's required return.
This model projects current EPS forward by an expected growth rate, applies a terminal P/E multiple at the end of the projection period, and discounts the resulting future price back to today.
IV = [EPS × (1+g)^n × Terminal P/E] / (1+r)^n
EPS = current earnings per share, g = growth rate, n = years, r = discount rate.
Current EPS = 5, 10% growth for 10 years, 15× terminal P/E, 12% discount rate. Future EPS = 5 × 1.1¹⁰ ≈ 12.97. Future price = 12.97 × 15 ≈ 194.53. IV = 194.53 / 1.12¹⁰ ≈ 62.61 per share.
Highly sensitive to growth rate and discount rate assumptions. Small changes in inputs produce large changes in output. Does not model dividends, share buybacks, or capital structure changes.
Frequently asked questions
Use your required rate of return or the cost of equity (from CAPM). Higher discount rates produce lower intrinsic values — reflecting higher risk or opportunity cost.
Use a conservative P/E that reflects the company's expected mature-state earnings multiple. The S&P 500 long-term average P/E is roughly 15–16×. Growth companies may warrant higher; cyclicals lower.
Similar in concept but simpler. A full DCF discounts each year's free cash flow individually and adds a terminal value. This model is a shortcut that projects terminal earnings and discounts in one step.
Because it depends on subjective inputs — growth rate, discount rate, terminal multiple. Two analysts with different assumptions will arrive at different intrinsic values for the same stock.
Related
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Calculate the margin of safety as the percentage discount between estimated intrinsic value and current market price for value investing analysis.
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Calculate the PEG ratio from the P/E multiple and expected earnings growth rate to evaluate whether a stock's valuation is justified by its growth prospects.
