What is meant by the intrinsic value of a security?

The intrinsic value of a security refers to its perceived true value as determined through financial analysis. This assessment typically involves evaluating various factors such as earnings potential, dividends, cash flows, and other fundamental metrics that reflect the financial health and future prospects of the company.

Investors and analysts often calculate intrinsic value to determine whether a security is undervalued or overvalued compared to its current market price. By focusing on the underlying fundamentals rather than market sentiment or price movements, investors aim to identify investment opportunities that can lead to better returns over time.

In contrast, relying on market price alone would not provide a complete picture of a security’s value, as market prices can be influenced by many external factors, including speculation and investor behavior that may not reflect the company’s actual performance. The historical high price of a security, while potentially informative, does not consider current or future value levels. Additionally, dividing total assets by outstanding shares provides a measure of book value rather than intrinsic value.