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5 Easy Ways to Calculate Intrinsic Value of Stocks

Stocks are indeed one of the instruments in investment activities that are popular in the community. This is because the way it works is recognized as very easy to do with high profit opportunities. So how do you calculate the intrinsic value of the stock?

You can indeed choose stock investments to be able to add financial assets that can be done in the future. Especially if you are a beginner who wants to start but don’t know the most appropriate type to choose. Just like trying new things, of course there are many things to learn

Not only choosing the right company to buy shares, there are also other important skills to learn. One of them is how to calculate the intrinsic value of the shares of the PT. This has actually become basic knowledge for investors so that beginners need to know.

There are many definitions that explain the intrinsic value. According to Tandelilin (2010) the term refers to the actual stock value or commonly referred to as theoretical value. By comparing each company, investors will take it into consideration.

When you have got the intrinsic value of the stock, it can be compared to the market value of the stock. The goal is to make decisions more accurate because they can be used as a factor of consideration when determining them. So it’s important to learn slowly.

What is the Intrinsic Value of Stocks?

How to calculate the intrinsic value of Warren Buffett's stock

First of all, know what the intrinsic value of a stock is. It has been explained previously that the term actually refers to the true value of a share. So the amount can be seen based on any aspect that can affect it.

Also Read: How to Calculate Stock Return

Some of these aspects include visible and invisible assets, company name, prospects for progress and others. Every investor is also obliged to know how much the intrinsic value of the shares of each company is because it needs to be used as a determinant of a stock before it is chosen to be going down or up.

With a declining stock price plus the right company selection, an investor can get maximum results in the future. The hope is that they will be able to make more accurate decisions both in buying, selling and maintaining it.

Easy Ways to Calculate Intrinsic Value

how to calculate the intrinsic value of shares per share

There are several simple methods you can use to determine intrinsic value. In fact, you will find many foreign terms in the calculation formula, so it is better to know what they mean before trying to calculate them. Here’s the full review:

BVPs atau Book Value Per Share

It’s a good idea to know in advance what the term Book Value Per Share or commonly referred to as BVPs means. As an investor, this ability is actually very basic which has often been explained by Warren Buffet as an expert in calculating the world of stocks, including intrinsic value.

Also Read: How To Read Stock Charts

The concept that Warren Buffet has explained suggests buying companies with good fundamentals when prices are at a discount. By using this BVPs formula, you can calculate stock valuations in just an instant. Here are some ways to calculate the intrinsic value of the stock:

  • Equity : Asset Value – Company Payable
  • Share : Amount of shares sold
  • Use the RTI Business app to calculate BVPs
  • Enter some components earning with complete

PBV ROE

The next method of calculating the intrinsic value of a stock is introduced by Mr. Teguh Hidayat through his book. According to the author himself, it is quite rational so that it can be implemented on the stock exchange. PBV is price book value where the art is the comparison of the current price of each share-her.

You are also still using the RTI Business application to calculate the PBV Roe value. This apk can be downloaded using both PC and mobile devices, but it is recommended that laptops and computers only make it look clearer and more detailed. Here are some examples in calculating PBV ROE

  • Company A’s shares have an ROE of 10% = fair value when PBV 1x
  • Company B’s shares have an ROE of 15% = fair value when PBV is 1.5x
  • Company C shares have 20% ROE = fair value when PBV 2x
  • Company D’s shares have an ROE of 30% = fair value when PBV 3x

BOOK Value and ROE for 5 Years

Quite different from the previous 2 ways of calculating the intrinsic value of a stock, this method will require simple mathematical calculations. You will not discuss the formula but directly on how to apply it. Here’s how to calculate the intrinsic value of the stock:

  • First, find the Book Value Per Share of Company X
  • Find the average ROE for the last 5 years
  • Multiply Book Value by ROE for 5 years

Gordon’s Growth Formula

Gordon’s growth concept analysis is often used in companies whose sales and profit values ​​grow consistently over time. When profits grow, then they can distribute to shareholders.

  • Assume that the dividend will grow indefinitely
  • Use the following formula:

Estimated dividend per share / investor return rate – dividend growth rate

  • Assume several variables in the formula
  • Assume the estimated dividend per share for one year is IDR 50
  • Determine the rate of return of 10%
  • Assume that the annual dividend growth rate is Rp 2%
  • Use the following Gordon formula:

(Rp 50 / (10% – 2%) = Rp 625

  • The intrinsic value of the stock is IDR 625

Residual Income Formula

You can see the book value per share is usually where this is the asset of each company. Usually it can also be defined as equity. First of all, understand the concept of residual value. Here’s how to calculate the intrinsic value of the stock:

Also Read: How To See Stock Prices On IDX

  • Add value to the book value of the stock
  • Enter residual value
  • Calculate residual income with the following formula:

RIt = Et – rBt-1

  • Assume net income is IDR 10,000 per year
  • Assume the book value is always at Rp 60,000
  • Assume a rate of return of 10%
  • Enter in the formula:

RIt = IDR 4,000/ 0.1 = IDR 40,000

  • Calculate again with the formula:

Intrinsic Value = Current Book Value + Present Income Value

Intrinsic value = IDR 60,000 + IDR 40,000

Intrinsic value = IDR 100,000

Guidelines for the Intrinsic Value of Shares in Buying and Selling Shares

how to calculate the intrinsic value of a stock using the relative method

According to an expert named Suad Husnan stated that intrinsic value will show present value cash flow being received. In general, there are three easy guidelines that you can use as a reference for determining sales, purchases or even keeping.

First, when the intrinsic value is higher than the market price, it can be said to be moderate undervalued or always low. It is recommended for you to just buy it and keep it on hold when it has been successfully purchased. Second, when it tends to be low when compared to market prices.

This condition allows you not to own the stock because the price is too expensive so it is better to just let it go. Finally, when the value is the same, it shows if the situation is indeed reasonable and is at the point of balance.

Closing

Those were some ways to calculate the intrinsic value of a stock that you need to learn in some of the calculation formulas. Everything seems quite difficult, but this ability is important to have in determining the purchase and sale of company shares.

Thus the discussion this time, hopefully it can be very useful for all of you and don’t forget to share it on your respective social media so that other stock players can find out some of the information I explained above. Thank you

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