The intrinsic value of a stock is often referred to as its true value, a measure of its worth based on the company’s cash flows and other considerations. It is different from the market share price, which is the price that investors are willing to pay.
When comparing the intrinsic value of a stock against its market value, we will know if a stock is currently undervalued (market value lower than intrinsic value) or overpriced (market value more than intrinsic value).
What Is the Magnificient 7?
The Magnificient 7 refers to the 7 largest (and most popular) companies in the US stock market in terms of market cap. They are Apple, Microsoft. Google, Amazon, Nvidia, Meta, and Tesla.
In a recent sharing by Adam Khoo, an experienced value investor from Singapore, he calculated the intrinsic value of the 7 stocks and shared them on a table, starting from the most overvalued stock to the most undervalued stock. If you are interested to know what is the true (intrinsic) value of your favourite stocks or shortlisted stock of the Mag 7, do check out this table below (yellow box):
Other methods of valuation by Adam Khoo also include the PEG Ratio, which is a valuation metric for determining the relative trade-off between the price of a stock, the earnings generated per share (EPS), and the company’s expected growth.
In general, the P/E ratio is higher for a company with a higher growth rate. Thus, using just the P/E ratio would make high-growth companies appear overvalued relative to others. It is assumed that by dividing the P/E ratio by the earnings growth rate, the resulting ratio is better for comparing companies with different growth rates.
Lastly, the forward P/E ratio, which is a valuation metric that uses earnings forecasts to calculate the ratio of the share price to projected earnings per share. The “P” in forward P/E stands for price, or share price. The “E” stands for future earnings per share.
Concluding Thoughts
The valuation tables indicate that Tesla may be overvalued while Meta and Alphabet (Google) are undervalued. However, it is worth noting that a stock may stay undervalued for a long while. One good example is the Chinese stocks that have been beaten down for the past few years. On the other hand, it does not mean that an overpriced stock cannot rise even further.
I hope you find the sharing useful and can help you make an informed decision when you decide to invest in the Mag 7.
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