What is the basis of intrinsic valuation?

Intrinsic valuation is rooted in evaluating a company's fundamental worth by assessing its potential to generate future cash flows. This concept is predicated on the idea that the true value of a business is not reflected by its current market price but rather by its ability to produce cash flows that can be discounted to present value. By focusing on these future cash flows, investors can form a clearer picture of a company's financial health and sustainability over the long term.

This approach allows for a more objective analysis based on the company's performance metrics rather than speculative or emotional factors influencing market sentiment. While comparing a business to its competitors, examining current asset values, or considering market sentiment can provide context, they do not establish the intrinsic value of a company. Intrinsic valuation's strength lies in its grounded methodology focused on cash flow projections, making it a vital tool for individuals seeking to make informed investment decisions.