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IntrinsIQ calculates the intrinsic value of stocks within the S&P500 using a discounted cash flow model. Essentially, we are projecting the company’s future cash flows and discounting them to the present value.
intrinsic value = (dcf + cash and short term investments - total debt) / shares outstanding
This calculation is useful for finding potentially undervalued stocks that will perform well in the future in the face of temporary market conditions. That said, it is paramount to recognize that this valuation method has its limitations due to its sensitivity to a large number of assumptions and forecasts. Some of them include:
- A 20 year time horizon
- Growth rate years 1-5 calculation from Finviz (“EPS next 5Y”)
- Growth rate years 6-10 being half of years 1-5 (conservative)
- Growth rate years 11-20 being following inflation
- An average long term US inflation rate of 3.28%
We also suffered from other limitations, including the occasional occurrence of incomplete or uncleanable data. In these few cases, we developed conservative approximations or simply omitted the data point.
Disclaimer: IntrinsIQ is not a financial advisor, nor is this meant to resemble any form of financial advice. Please consult a certified financial advisor before making any investment decisions and carry out your own due diligence.