What Is Intrinsic Value?

Three families of method are in common use. Each needs assumptions; none removes the need for judgment.

1. Discounted cash flow (DCF)

The direct translation of the definition. Forecast the free cash flow the business will generate, add a terminal value for the years beyond the forecast, and discount everything to today at the return you require:

Subtract net debt and divide by shares for a value per share. The weakness is sensitivity: most of the value usually sits in the terminal value, so small changes in the discount rate or long-run growth move the answer a lot. Try it in the DCF calculator, which shows a sensitivity table next to the result.

2. Benjamin Graham's formulas

Graham offered a formula and a price rule. The Graham formula, V = EPS × (8.5 + 2g) × 4.4 / Y, capitalizes earnings and rewards expected growth, rescaled by the current AAA bond yield Y. The price rule is in chapter 14 of The Intelligent Investor (1973): a defensive investor should pay no more than 15 times average earnings and 1.5 times book value, or, as a rule of thumb, keep P/E × P/B at or below 22.5. The Graham Number, √(22.5 × EPS × book value per share), is that product rule solved for price — a derivation others made later, not Graham's own formula. It is the most the rule lets a defensive investor pay, not a growth estimate. Both need positive earnings and suit stable, asset-backed businesses better than fast growers. The Benjamin Graham Number calculator runs both.

3. Multiples

Multiply a figure such as earnings or book value by the multiple similar companies trade at. This is quick, but strictly it measures relative value: if the whole peer group is expensive, so is the answer. A multiple becomes an intrinsic estimate when it is derived from fundamentals rather than borrowed from peers, as in a justified P/E (payout × (1 + g) / (cost of equity − g)) or a justified P/B ((ROE − g) / (cost of equity − g)), which are DCF models in compressed form.

Working backwards: the reverse DCF

Instead of choosing a growth rate and getting a value, start from the price and solve for the growth it implies. That turns an unanswerable question (what will growth be?) into an easier one (is the growth this price needs plausible?). The reverse DCF calculator does this for any ticker.

AlphaStocks data as of October 26, 2026: a share price of $92.64 and a trailing P/E of 27.91, so trailing earnings per share are $92.64 ÷ 27.91 = $3.32. Three ways to turn that into an estimate:

The Graham formula gives 3.32 × (8.5 + 2 × 5) × 4.4 / 5 = $54.05. The reverse DCF says the $92.64 price is consistent with earnings growing about 16.3%a year for five years before settling at 2.5%. AlphaStocks' own model, which works from owner earnings rather than reported EPS, puts the base case at $69.37 within a $57.87 to $86.16 range.

What the example shows.Three reasonable methods give three different answers for one company on one day — two values and one implied growth rate — and every one of them moves with an assumption you chose. Here the price sits above both value estimates, and the reverse DCF puts the growth it implies at about 16.3% a year. That is a description of the assumptions, not a verdict on the stock: the market may expect more growth, or accept a lower return, than these inputs do. The useful question is which assumption you disagree with, and why. The current figures are on the KO stock page.

The terminal value dominates. In a typical five-year DCF, cash flows after year five account for most of the value, so the estimate depends heavily on two guesses about the distant future: long-run growth and the required return.

Earnings are not cash. Reported EPS, owner earnings and free cash flow can differ widely for a business that spends heavily on equipment or records large non-cash charges. Choosing the measure is part of the estimate.

Some businesses do not fit. For banks and insurers, debt is raw material rather than financing, so free cash flow and net debt lose their meaning; models built on book value and its return suit them better. Companies with losses have no earnings to capitalize.

One fair value per stock, from one method chosen by sector profile. The market price is never an input: no blending toward it, no hiding a value that disagrees with it. Each value comes with its method and a low–base–high range, and is withheld only when the method's inputs are invalid, with the reason shown. The fair value is displayed; it is not an input to the composite score.

• Two-stage owner-earnings DCF (Damodaran industry cost of equity): General.
• Justified P/B = (ROE − g)/(COE − g) × book value: Bank, Insurer, Holding company.
• Justified P/E = payout × (1 + g)/(COE − g) on normalized EPS: Asset manager, Utility.
• FFO × Nareit property-group P/FFO: REIT.

The full formulas, parameters and their dates are on the methodology page. Each stock page shows the estimate next to the price, or the reason it is withheld; it is not an input to the score.