Question

So when a intrinsic value is considered under valued or over valued, is it a bad...

So when a intrinsic value is considered under valued or over valued, is it a bad thing that its under valued and its good if its over valued? Like why do we have to calculate these values and what do they mean?
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Answer #1

HI

A intrinsic value of a share is expected value of share based on its future cash flows or dividends.

Lets say a stock current Price is $50 and its intrinsic value is $60. that means stock is undervalued at current time. and if its intrinsic value is $40 that means it is overvalued.

So if a stock is undervalued that means it is having chance of going up and reaching its intrinsic value. So that's a good thing. And an investor should buy that stock. but if a stock is overvalued that means its current share price is already higher than intrinsic value and that bad thing and stock can go down and reach its intrinsic value.

Regards,

Sumit

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