Question

Starbucks is currently priced at $54.00 and analysts believe its intrinsic value is $35.00. What is the financial definition of intrinsic value? Interpret intrinsic value with respect to Starbucks.

Answer 1

Intrinsic value is the fair value of the stock which is the present value of the company based on the future cash flows discounted at the cost of capital. In other words, it is the true value of the company which is estimated using fundamental analysis which considers both tangible and intangible assets.

This intrinsic value may or may not equal to the current market price of the company. In this case, intrinsic value of Starbucks is lower than the current price which means stock is trading at higher than its value that indicates stock is overvalued and it should decline in value to match intrinsic value.

the above is answer..