Basically, if the intrinsic value of a stock is $20, but the stock currently trades at $5, you would be looking at a $15 gain or 300%. This means the stock was undervalued.
And the opposite would be true, if the stock was trading at $20, but it's intrinsic value is $5, the stock is overvalued and not a bargain.
There are a few stock intrinsic calculators out there on the web. Some are more complicated, but there are easy ones where you can just enter the stock ticker and hit calculate.
There's also websites like gurufocus (free to use, although there's a pestering pop-up if you don't sign up for a free account) that will do the work automatically, with their "Fair Value Calculator."
On video 21 I believe, rule #4, he talks about calculating intrinsic value and shows how to do it on a Disney stock (approx. May 19, 2012). I saw this video before a couple years a back, when he had comments enabled. One comment mentioned that although Preston showed the Disney stock as overvalued, Disney stock has gone up a lot since his video. $108 as of today.
How accurate is intrinsic value? I had a couple stocks like RAD, Rite-Aid, give me a bargain price when calculating intrinsic value, but others not so much. I am still trying to figure it out. Different calculators result in different numbers because they use different numbers to calculate.
Is there a better way to calculate intrinsic value or are there too many variables? Like the change in 10-year federal note rates? Change in EPS or dividend rates? Will the company or industry change?
Is this the value trap I hear about? From what I read about Warren Buffett, he himself didn't use intrinsic value when he started investing.