A measure of the theoretical value of an asset (e.g. a security). By nature , it represents an estimate of an asset’s value based on available risk and return data. As such, the fundamental value is not the true or actual value of some asset, but merely an estimate. For a share of stock, this value is justified by factors such as a company’s assets, dividends, earnings, management, etc.
Fundamental value is one of the basic tools of fundamental analysis since it is used by analysts to calculate the value for an individual stock in comparison with the market price. In practice, this value is determined by applying data inputs to a valuation theory or model. The resulting value is usually compared with the prevailing market price. Because analysts differ in their estimates, there is often a wide disparity in estimates of a given stock’s fundamental value. However, this value is used as a basis for determining whether to purchase or sell a particular security.
Fundamental value is referred to as an intrinsic value.
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