Intrinsic value can be subjective and difficult to estimate. It’s a perception of a security’s value that factors tangible and intangible factors. For example, a company’s CEO may engage in some criminal activities in his free time, landing him in jail and prompting investors to lose confidence and dump their shares. The stock’s actual market value may fall, but its intrinsic value might still be high based on the company’s overall strength.There are different ways to figure a stock’s intrinsic value that remove some of the subjectivity and focus on its fundamentals. Applying models that focus on a company’s fundamentals to find its intrinsic value can put a new perspective on its shares. The dividend discount model values a stock by using predicted dividends, and discounting them back to present value. The residual income model derives the stock’s value by determining the difference between its earnings per share and its per-share book value. The most common valuation is the discounted cash flow method, which subtracts changes in working capital and capital expenditures from free cash flows. Analysts use these models to see how a stock’s intrinsic value compares to its current market price, and to find undervalued or overvalued securities. Investors will usually determine a margin of safety, or the difference between a stock’s market price and what they see as its intrinsic value. This cushion limits the downside the investor incurs if the stock is worth less than the estimated intrinsic value.