Intrinsic Value Calculation – How to Find the True Worth of a Stock in Nepal

In the Nepal Stock Exchange (NEPSE), every serious investor must understand the concept of Intrinsic Value, which represents the true worth of a company’s stock based on its real performance and future potential — not just the market’s short-term emotions. Market prices rise and fall daily due to speculation, sentiment, and liquidity, but intrinsic value reflects the core financial strength, earning capacity, and long-term sustainability of a company. Calculating intrinsic value allows investors to identify whether a stock is undervalued, fairly valued, or overvalued, forming the foundation of value investing in Nepal.

Intrinsic Value is calculated using analytical models that project future performance and convert those expectations into today’s value. The two most reliable methods are the Discounted Cash Flow (DCF) model and the Earnings-Based or Dividend-Based Approach. The DCF method estimates the present value of all future cash flows the company will generate by discounting them using a suitable required rate of return. The formula — Intrinsic Value = Σ (Future Cash Flow ÷ (1 + r)ⁿ) — acknowledges that money received today is worth more than the same amount in the future. Similarly, the Dividend Discount Model (DDM) is applied to dividend-paying companies, determining a stock’s fair value based on the present worth of future dividends.

In NEPSE, banking, insurance, hydropower, and manufacturing companies show different intrinsic values because of their unique earnings patterns and business models. Banks often have stable income and predictable dividends, while hydropower companies experience fluctuating cash flows until project completion. By comparing intrinsic value with market price, investors can identify undervalued opportunities (when intrinsic value is greater than market price) and avoid overvalued traps (when market price exceeds real worth).

Understanding intrinsic value helps investors develop patience, discipline, and rational decision-making — key traits of long-term wealth creation. It separates emotional speculation from intelligent investing, allowing one to buy quality companies at discounted prices and hold them confidently through volatility.

According to Sandeep Kumar Chaudhary, Nepal’s most respected Technical and Fundamental Analyst and founder of the NepseTrading Training Institute, “Price is what you pay, but value is what you get. A wise investor always focuses on value, not the crowd’s noise.” With 15+ years of banking and stock market experience, and having trained over 10,000 Nepali investors, he teaches how intrinsic value is the heart of fundamental investing — the path to sustainable financial independence.