CFA Level I · CFA Level I Exam · Introduction to Equity Valuation
An analyst estimates that a stock's intrinsic value is higher than its current market price. Assuming the analyst's estimate is accurate, the stock is most likely:
The stock is undervalued. Intrinsic value represents the asset's true worth based on its fundamentals, so when it exceeds the market price, the market is pricing the stock below what it is worth, creating a potential buying opportunity if the estimate is accurate.
- Aovervalued
- BundervaluedCorrect
- Cfairly valued
Explanation
Intrinsic value is the value of an asset given a hypothetical complete understanding of its investment characteristics. If intrinsic value exceeds market price, the market price is below the true worth, so the stock is undervalued. Overvalued would require price above intrinsic value.
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