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According to Warren Buffett, intrinsic value is equal to the present value future expected performance. He feels that an investor should ultimately rely on the discounted cash flows of cash to determine the investment that is cheapest, despite what Technical Analysis (examining movements in past prices and earnings), P/E ratios or growth rates might reveal. It is the value that you place on a stock. This value can differ from what the market perceives your stock to be worth and this is how you can ultimately determine whether a stock is over or undervalued.
"It doesn't have to be rock bottom to buy it. It has to be selling for less than you think the value of the business is, and it has to be run by honest and able people. But if you can buy into a business for less than its worth today, and you are confident of the management, and you buy into a group of businesses, like that, you are going to make money."
Warren Buffet asks himself many questions when trying to determine the difference between the intrinsic value of a company and its current market share price. He looks mainly at the internal performance, ability and potential of a company. For example, when analyzing the profitability of a company, it depends not only on the Profit margin (i...