Determining the Intrinsic Value of a Stock

Price is what you pay and value is what you get. 

For example, you pay SGD2.60 for a cup of McDonald's coffee black and SGD1.10 for an equivalent kopi 'O' from a HDB coffeeshop.  Who's to say one cup of coffee is overpriced or underpriced as the value to the drinker differs from one to another?

When it comes to stock investment, the 'flavour' is removed from the equation and you can determine the inherent or intrinsic value of a share in a relatively objective way by using Value Investing.

Here is an overview from Wikipedia:-

"Value investing is an investment paradigm which generally involves buying securities that appear underpriced by some form of fundamental analysis, though it has taken many forms since its inception. It derives from the ideas on investment that Benjamin Graham and David Dodd began teaching at Columbia Business School in 1928 and subsequently developed in their 1934 text Security Analysis. As examples, such securities may be stock in public companies that trade at discounts to book value or tangible book value, have high dividend yields, have low price-to-earning multiples or have low price-to-book ratios.

High-profile proponents of value investing, including Berkshire Hathaway chairman Warren Buffett, have argued that the essence of value investing is buying stocks at less than their intrinsic value. The discount of the market price to the intrinsic value is what Benjamin Graham called the "margin of safety". The intrinsic value is the discounted value of all future distributions.[citation needed] However, the future distributions and the appropriate discount rate can only be assumptions. Graham never recommended using future numbers, only past ones). For the last 25 years, Warren Buffett has taken the value investing concept even further with a focus on "finding an outstanding company at a sensible price" rather than generic companies at a bargain price.

Graham never used the phrase, "value investing" — the term was coined later to help describe his ideas and has resulted in significant misinterpretation of his principles, the foremost being that Graham simply recommended cheap stocks."

As for calculation of intrinsic value, the following YouTube clip provides a good discourse.

Click here for Lesson 21. Warren Buffett Intrinsic Value Calculation - Rule 4