Intrinsic Value Edge® is Applied Finance’s research-backed investment advantage, built through decades of proprietary intrinsic value calculations, corporate stewardship evaluations, and continuous theoretical and applied research.
Since 1998, Applied Finance has maintained a live database of more than 20 million out-of-sample intrinsic value and stewardship assessments, updated weekly across global equity markets. This advantage allow us to understand how well we value the stocks we own in our portfolios and just as importantly those we do not so we continually learn and grow our knowledge base.
As published in the Financial Analysts Journal — “Intrinsic Value – A Solution to the Declining Performance of Value Strategies” — Our Intrinsic Value Edge® provides investors with a measurable, forward-looking advantage based on a company’s ability to create shareholder wealth above its cost of capital and management’s effectiveness in capital stewardship.
Highlights of our Intrinsic Value Edge® as Discussed in the Paper
Forward-Looking Intrinsic Value Calculation:
Intrinsic value is constructed as the book value of equity plus the present value of future economic profits, rather than relying on static accounting metrics like book-to-market.Shortcomings of Traditional Value Metrics:
Traditional valuation multiples (e.g., price-to-book, price-to-earnings) fail to consistently predict returns after accounting for intrinsic value, particularly in environments with lower discount rates and rising dispersion in profitability.Empirical Evidence:
A long-short portfolio based on Applied Finance’s intrinsic-value-to-market (IVM) ratio delivers a statistically significant CAPM alpha of 56 basis points per month for large stocks from 1999 to 2023, outperforming strategies based on conventional valuation ratios.Impact of Economic Trends:
Declining discount rates and the increasing importance of future economic profits have diminished the predictive power of book value; intrinsic value better captures this structural shift.Validation Through Real-Time Data:
All intrinsic value estimates used in the study are based on live, out-of-sample data since 1998, strengthening the credibility of the findings and avoiding biases associated with backfitted or recreated historical models.
Our Intrinsic Value Edge® enhances stock selection, improves portfolio construction, and supports superior long-term return potential across different market environments. Contact us to learn more about our Intrinsic Value Edge® and investment portfolios.