What’s the difference between “intrinsic value” and “market value”? – C.B., Opelika, Ala.
Imagine Meteorite Insurance (ticker: HEDSUP). Its intrinsic value is what it’s really worth, based on factors such as its assets and debt, its anticipated growth rate and, ultimately, the amount of cash it’s expected to generate during its lifetime.
Unfortunately, that’s not easy to determine, and different smart analysts will arrive at different numbers. Plus, things change. Meteorite’s intrinsic value might be estimated around $10 billion, but if a competitor gains a lot of ground with a new product, Meteorite’s future, and therefore its intrinsic value, is suddenly different. Meanwhile, market value is what investors are willing to pay for a company. It’s typically measured by calculating a company’s market capitalization: If Meteorite Insurance has 100 million shares outstanding and the current share price is $60, then its market cap is $6 billion (100 million times $60). If a firm’s estimated intrinsic value is higher than its market value, its stock likely is undervalued and attractive.
I was conceived in 2002 and born in 2003, and already I carry a market value not far from $20 billion. Based in California, my mission is to “connect the world’s professionals to make them more productive and successful.” My membership tops 200 million people, based in more than 200 nations and territories, and I’m adding about two per second. I boast pages for more than 2.7 million companies, too. Many people use me for free, but I’m raking in close to a billion dollars annually from my talent solutions, marketing solutions and premium subscriptions businesses. Who am I? Last Week’s Trivia Answer: eBay
REACH THE GARDNERS AT FOOL@FOOL.COM OR MOTLEY FOOL, 1130 WALNUT, KANSAS CITY, MO 64106.