What is fair value?

Explained plainly and without jargon: what fair value means, how it differs from the share price, and when a stock is over- or undervalued. Exactly the questions investors ask most.

What is fair value?

Fair value (or intrinsic value) is what a stock is really worth based on its fundamentals, derived from earnings, cash flows, growth and the balance sheet, independent of current market sentiment. It is a reasoned estimate, not a certainty.

Is fair value the same as market value?

No. Market value is the current share price, what buyers and sellers are paying right now. Fair value is the value justified by the fundamentals. Short term the two can differ a lot; long term they tend to converge, and that gap is exactly what value investors look for.

What is the difference between intrinsic and extrinsic value?

Intrinsic value comes from the business itself, from its fundamentals. Extrinsic value is everything the market adds or subtracts on top: sentiment, momentum, and for options the time value. Fair-value analysis focuses on intrinsic value.

What is the fair value of shares?

For a single share, fair value is the estimated intrinsic worth per share. Multiplied by the share count it gives the company's fair total value. When the price sits below it, the stock is undervalued; above it, overvalued.

When is a stock over- or undervalued?

Undervalued: the price sits meaningfully below fair value, leaving a margin of safety. Overvalued: the price has run ahead of the valuation. Important: a low price alone is not enough, weak quality can be a value trap.

Educational guide, not financial advice. Fair value is a model estimate, not a certainty.