What is the difference between intrinsic value and market value of a stock?

Intrinsic value is the true worth of a stock based on its financial health, future growth, and business fundamentals. Market value is the current price at which a stock is traded in the stock market. The intrinsic value helps investors determine whether a stock is overvalued or undervalued, while the market value fluctuates based on supply, demand, and market trends.

1. What is Intrinsic Value?

Intrinsic value is the estimated real value of a stock based on its financial performance, future earnings, and industry position. It is calculated using methods like discounted cash flow (DCF) analysis, price-to-earnings ratio, and book value.

Investors use intrinsic value to determine if a stock is worth investing in. If the intrinsic value is higher than the market price, the stock is undervalued and may be a good buy.

2. What is Market Value?

Market value is the current price of a stock as determined by the stock market. It changes constantly due to investor sentiment, supply and demand, economic conditions, and company performance.

Market value is influenced by factors like news, earnings reports, industry trends, and global events. It may not always reflect the true worth of a company, which is why investors compare it with intrinsic value before making decisions.

3. Key Differences Between Intrinsic Value and Market Value

Intrinsic Value	Market Value
Determined by financial analysis	Determined by supply and demand
Changes slowly based on company performance	Changes daily based on investor sentiment
Helps investors find undervalued stocks	May not reflect true company value
Used for long-term investment decisions	Used for short-term trading strategies

4. Why is This Comparison Important?

Understanding the difference between intrinsic value and market value is important for making smart investment decisions. If the intrinsic value is much higher than the market price, it could be a good investment opportunity. On the other hand, if a stock is trading above its intrinsic value, it may be overvalued.

Investors use this comparison to decide when to buy or sell stocks for maximum profits.

5. Conclusion

Intrinsic value is the actual worth of a stock based on fundamental analysis, while market value is its current trading price. Comparing both helps investors find the best investment opportunities. Understanding this difference can improve investment strategies and reduce risks.