How To Calculate Intrinsic Value UPDATED (Stock Market Investing)

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Disclaimer:
I am not a financial adviser. This video is for education and entertainment purposes only. Seek professional help before making any investment decision.​

[mariaryan-mrlq]

Hit 200k today. Thank you for all the knowledge and nuggets you had thrown my way over the last months. Started with 17k in last month 2024.

[lunchinvesting]

"Trying to be approximately right rather than precisely wrong"

Loved it!

[devbhojak]

Thanks bro, especially for attaching spreadsheet.

[toxichelix]

high invensting with Tom. you are brilliant, for around 8 months ago i did a big valution of 100s of companies and your videos has managed to help me a lot. the company i ended up buying is been doing really well i am up 80% in it

[jatinrai]

I did valuation of google around a month back and came up with 90-100 dollar value. Pretty much i followed the similar approach. Difference being 8% discount rate (~government bond rate here in India), more conservative forecasts and for terminal value calc i again used 8% discounting (~12x multiple) on 10th yrs FCF


At last, pls keep up the good work. I enjoy watching your videos

[danienishanov]

this is a great starting framework, thanks a lot Tom.
will appreciate if you could from time to time make videos like this with gradually more complicated sheets that will take in to consideration more parameters, like building on it, purely for learning, not for stock tips or anything like that.

[mikeandrews]

Can you do a video on the intrinsic value of dividend stocks?

[Threecommaaclub]

What are some of the plugins you use for the excel spreadsheet

[cocoarecords]

Really like how you explain things instead of jumping straight into them. Subbed

[techie]

Thanks for this video and the spreadsheet! One of the better ones I have watched.

For FCF, how do we know what a "typical" year is? There are many line items under OCF and I can see how the company manipulates these numbers for any specific year. I could see the possibility of hefty one-time spends for CapEx as well.

[henrymichal]

Very good video Tom. Something we should have in our armoury before we lay down our cash. Thanks again mate.

I'm almost getting nostalgic when I see that thumbnail! Is part 1 still your most successful video of all time?

[donals]

Thanks Tom for spreadsheet much appreciated 👍

[aryaaimagh]

Hi Tom, The FCF you are using is only for Equity holders, since FCF is derived from net income where interest payment has already been paidout. Can you please explain why are you adding back cash and deducting total debt in the end and then afterwards divide by number of outstanding shares(equity holders) ?

[BG-mwpt]

thank you tom for this great analysis.

one thing i'd say is probably not accurate to consider the growth of stock based compensation at the same rate as FCF. usually stock based compensation is related to revenue, so if a company plans to increase revenue by 10% annually, they might pay out 5% of that in stock based compensation. what i'm saying is FCF grows at a different rate than SBC.

you're not wrong in your analysis for google or apple, but for smaller companies, this model will greatly skew the numbers towards negative growth, which is not feasible.

also, your discounted column F is constant from F8... something off there?

[joegriffiths]

Hi Tom.
Should we be forecasting the stock based comp out for the 10 years as an estimate or just for year 1 as you have in your calculation.
Thanks

[peterrowlinson]

Hi Tom, great video, easy to follow. Sorry I'm a bit of a novice but my question is that your spreadsheet handles billions. The scenario I'm looking involves hundreds of thousands on the cash flow and compensation, and millions for the net cash and shares outstanding. How do I adjust the table to represent these amounts accurately in a share price. Any guidance would be great. Thanks

[yiannidalakas]

Thank you for the video Tom.

I have a question regarding free cash flow. If you calculate your expected return based on your estimate of future free cash flow, this assumes that all free cash flow is returned to shareholders in the form of dividends. How do you handle the situation when free cash flow is used for acquisition, debt reduction, buybacks etc. ? Each of these options produce different returns, for you the investor. A video on this topic would be great, because it's quite a long question. Regards.

[mahmutmereyem]

Please make a more in depth video about valuation with dcf

[InvestingwithTom]

Thanks for watching! Be sure to subscribe for more, and feel free to download the spreadsheet template via the link in the video description :)

**Important note**
I’ve had a few good comments about whether or not it’s correct to be subtracting SBC from FCF, since it’s already expensed on the income statement, then added back on the cash flow statement to get to operating cash flow. Surely adjusting for it again is double counting?


Subtracting free cash flow as I’ve done in the video is more conservative and essentially treats SBC as if if were a cash cost, and will give a lower intrinsic value result. But, you could easily argue it’s TOO conservative. For companies will little to no SBC, you should get the same result either way 🙂