Intrinsic value calculation: A practical framework
The core principle of value investing is deceptively simple. Every stock has a true worth independent of its market price. Investors who buy below this intrinsic value will profit over time. Benjamin Graham, the father of value investing, made this the cornerstone of his investment philosophy. His teachings influenced Warren Buffett and generations of successful investors. For Indian investors venturing into U.S. markets, understanding the calculation of intrinsic value is essential. This holds especially true in January 2026, when the S&P 500's CAPE ratio approaches 40, nearing dot-com bubble levels. The Buffett Indicator sits at an all-time high of 223%. This framework will help you distinguish between speculation and investing, identify opportunities as they emerge, and protect capital through disciplined application of margin-of-safety principles.
Intrinsic value calculation represents one of the most powerful fundamental analysis tools for Indian investors seeking long-term wealth creation in the U.S. markets.
What intrinsic value means and why it matters
Intrinsic value represents the calculated true worth of a security based on its fundamental characteristics. It equals the present value of all cash the business will generate during its remaining life. As Buffett defines it: "Intrinsic value is the discounted value of the cash that can be taken out of a business during its remaining life." This value exists independently of what Mr Market offers on any given day.
Graham introduced the Mr Market analogy to explain this concept. Imagine you own a small share in a private business with a manic-depressive partner named Mr Market. Every day, he appears with an offer to buy your share or sell you his. Sometimes he offers reasonable prices. Often, his prices seem a little short of silly—the intelligent investor profits from MMrMarket's mood swings rather than participating in them. When MrMrarket panics and offers low prices, you buy. When he becomes euphoric and offers high prices, you consider selling.
The difference between investing and speculating comes down to valuation discipline. Graham wrote: "An investment operation is one which, upon thorough analysis, promises safety of principal and a satisfactory return. Operations not meeting these requirements are speculative." Speculators follow price momentum and crowd sentiment. Investors calculate what a business is worth and act only when prices diverge significantly from that value. Historical evidence overwhelmingly favours the intrinsic value approach. Graham's GEICO investment returned 500× over 25 years. Buffett's $1.3 billion Coca-Cola position grew to over $20 billion.
Understanding Benjamin Graham's seven criteria for selecting value stocks complements intrinsic value calculation by providing qualitative filters for stock selection.
The complete stock valuation methods toolkit
Discounted Cash Flow analysis
DCF remains the gold standard for intrinsic value calculation. The formula captures the fundamental truth that a business is worth the present value of all future cash it will generate.
Enterprise Value = Σ [FCF_t / (1+WACC)^t] + Terminal Value / (1+WACC)^n
Free Cash Flow equals EBIT × (1 - Tax Rate) + Depreciation & Amortisation - Capital Expenditures - Change in Working Capital. The weighted average cost of capital combines equity and debt costs using the formula: (E/V × Cost of Equity) + (D/V × Cost of Debt × (1 - Tax Rate)).
Terminal value often represents 60-80% of the total DCF value. Calculate it using the Gordon Growth method: FCF_n × (1 + g) / (WACC - g), where g is the perpetual growth rate capped at 2-3% and aligned with GDP growth. Current January 2026 inputs forU.S.S stocks include a 10-year Treasury yield of 4.25% as the risk-free rate. The equity risk premium is 4.33%, according to Damodaran's calculations. This yields a total market cost of equity around 8.6%.
Dividend Discount Model for income investors
For stable dividend payers, the Gordon Growth Model provides an elegant shortcut.
P = D₁ / (r - g)
Where D₁ is next year's expected dividend, r is the required return, and g is the dividend growth rate. This works beautifully for utilities, REITs, and established consumer staples with predictable payouts. Estimate the sustainable growth rate as g = (1 - Dividend Payout Ratio) × ROE.
Worked example for Target Corporation. Annual dividend stands at $4.48. Historical Dividend Growth equals 8%. Required return is 13%. D₁ = $4.48 × 1.08 = $4.84. Intrinsic value = $4.84 / (0.13 - 0.08) = $96.80. At a market price of approximately $135, Target would appear 40% overvalued by this metric. This illustrates why triangulation across methods matters.
Graham's intrinsic value formula
Benjamin Graham provided a simplified formula in The Intelligent Investor.
Original Formula: V = EPS × (8.5 + 2g)
The 8.5 represents the P/E ratio for a zero-growth company, implying an 11.76% earnings yield. The g equals the expected annual growth rate over 7-10 years. Graham later revised this to adjust for interest rates.
Modified Formula: V = [EPS × (8.5 + 2g) × 4.4] / Y
The 4.4 was the average AAA corporate bond yield in 1962. Y represents the current AAA yield. With the January 2026 AAA corporate bond yield at 5.35%, this adjustment significantly reduces valuations relative to the original formula.
Example for Coca-Cola. EPS = $2.50. Growth rate = 6.4%. Y = 5.35%. V = [$2.50 × (8.5 + 12.8) × 4.4] / 5.35 = $43.81.
The Graham Number offers another quick check: √(22.5 × EPS × Book Value Per Share). This represents the maximum price for a defensive investor.
Comparative valuation multiples
Relative valuation provides market-based sanity checks through comparable company analysis. January 2026 sector P/E ratios forU.S.S markets show Information Technology at 39, Consumer Discretionary at 30, Healthcare at 25, Energy at 19, Communication Services at 18, and Financials at 18.
EV/EBITDA multiples by sector range from 5-8× for Energy to 15-25× for Technology. When applying multiples, use the median of at least 5-10 comparable companies. Adjust for growth rate differences. Remember that capital structure differences make EV/EBITDA superior to P/E for cross-company comparisons.
Earnings Power Value for conservative analysis
Bruce Greenwald's EPV method assumes zero growth, making it inherently conservative.
EPV = Adjusted Earnings / WACC
Adjusted earnings start with normalised EBIT using 5-year average margins. Subtract maintenance capex and add back excess depreciation. If EPV exceeds the assets' reproduction cost, the company has a competitive advantage worth paying for. If not, the business may be a value trap.
The margin of safety imperative
Graham called the margin of safety the central concept of investment and devoted an entire chapter to it with that exact title. The formula is straightforward.
Margin of Safety (%) = (Intrinsic Value - Market Price) / Intrinsic Value × 100
Buffett explains it through engineering: "When you build a bridge, you insist it can carry 30,000 pounds, but you only drive 10,000-pound trucks across it. And that same principle works in investing." The margin accounts for estimation errors, unforeseen events, and the fundamental uncertainty of projecting future cash flows.
Required margins vary by company type. Blue-chip, stable companies require a 10-20% margin due to predictable earnings and strong moats. Mid-cap and moderate-risk companies require a 20-30% margin due to greater uncertainty and less analyst coverage. Small Caps and higher-risk names require a 30-50% margins due to limited track records and higher volatility. Growth companies require 40-50% or more, given the highly uncertain execution environment. Turnarounds and distressed situations need 50% or more since binary outcomes are possible.
Seth Klarman articulates why: "Benjamin Graham understood that an asset or business worth $1 today could be worth 75 cents or $1.25 in the near future. He also understood that he might even be wrong about today's value. Therefore, Graham had no interest in paying $1 for $1 of value."
Building conservative assumptions into every valuation
Small changes in DCF assumptions can cause significant valuation swings. A 0.5% change in the growth rate or discount rate can alter a company's value by 10-15%. Conservative assumptions protect optimistic forecasting.
Critical rules of thumb guide this process. Never rely on management's optimistic guidance, as they have incentives to be bullish. Cap terminal growth at GDP of 2-3% because no business outgrows the economy indefinitely. Haircut analyst estimates by 10-20% since Wall Street tends to be optimistic. Use higher discount rates for riskier companies,s with 8-10% for blue chips and 12-15% for speculative names. Assume competitive advantages fade because moats erode over time.
Stress-test every valuation using bear-case scenarios. What if revenue drops 20-30%? What if operating margins compress 500 basis points? What if the discount rate spikes 2-3%? At what assumptions does the investment still break even?
The range of values approach.
Single-point estimates create false precision. Build valuation ranges through sensitivity and scenario analyses (bear, base, and bull cases weighted 20%, 60%, and 20%), and triangulate across multiple methods. The football field chart visualises this by showing the DCF range, the comparable companies' range, and the asset value side by side. Identify where values cluster to define your confidence zone. Investigate outliers.
When methods give wildly different results, widen your required margin of safety. When they converge, you can proceed with more confidence.
Current market valuation reality check for January 2026
The 10-Year Treasury stands at 4.25%, compared with a historical average of approximately 4.0%, which appears elevated. The Equity Risk Premium is 4.33%, versus a 4.25% historical average, which seems normal. S&P 500 Trailing P/E ranges from 28 to 31, significantly above the historical average of 16.2. S&P 500 Forward P/E is 22.1, up from the historical average of 18.8. Shiller CAPE approaches 40, compared to a historical average of 17.3, near a record at the 99th percentile. The Buffett Indicator is at 223-230%, above the 80-100% historical average and at an all-time high. Price-to-Book hits 5.6 versus 2.9 historical average, near record. Dividend Yield is at 1.13%, near the record low of 2.88% and below the historical average.
The CAPE ratio of approximately 40 is the second-highest in 155 years. Only the dot-com bubble peak of 44.19 in 2000 exceeded it. The Buffett Indicator at 223% sits 77% above its historical trend line. Every prior instance at similar levels preceded a 25% or greater decline.
For intrinsic value investors, current conditions demand elevated selectivity and larger margins of safety. Sectors trading at fairer valuations include Energy, Communication Services, and Real Estate. The most expensive sectors are Information Technology and Industrials.
Practical calculation walkthrough using Coca-Cola
Current Data for January 2026 shows Stock Price at approximately $66-70, EPS TTM at roughly $2.50, Dividend at $1.94 annually, 5-Year EPS Growth at 6.4%, and Book Value Per Share at approximately $6.
Method 1, using DCF, yields $52.96. Method 2, using DCF Moderate, produces $82.78. Method 3, using DDM with 6% return assumption, shows $67.33. Method 4, using the Graham Modified Formula, ranges from $43.81 to $ 53.25. Method 5, using the Graham Number, yields $18.37. Meth6, using the industry average P/EE/E multiple, shows $50.00.
Triangulated Range ranges from $44 to $ 83 per share. Midpoint reaches approximately $55. The current price is roughly $68.
The assessment indicates that, at current prices, Coca-Cola is fairly valued to slightly overvalued. Using the conservative intrinsic value of $55, the price-to-value margin is -24%, as the cost exceeds the value. For a 25% margin of safety, your buy price target would be $55 × 0.75 = $41.25.
This illustrates why patience matters. Quality companies rarely trade at deep discounts, except during market panics such as March 2020, when even blue chips fell by more than 30%.
The buy, hold, and sell decision framework
When to buy
Buffett's criteria remain timeless. You can sensibly calculate earnings for a minimum of 5 years. The stock trades at a reasonable price relative to your bottom-bound estimate. You understand the business. Management has integrity. Price provides a significant margin of safety.
Quantitative thresholds guide decisions. Price should sit at least 20-50% below intrinsic value. The margin of safety should be at least 20% for quality companies and 30-50% for riskier names. A catalyst for value recognition should appear within 2-3 years. Strong fundamentals should include an ROE above 15%, reasonable debt levels, and consistent margins.
When to sell
Buffett says, "our favourite holding period is forever," but identifies appropriate selling times. Sell when the stock reaches its intrinsic value with no remaining margin of safety. Sell when a better opportunity exists elsewhere. Sell when fundamentals deteriorate. Sell when your original thesis breaks.
Graham's practical rule states: "Purchases not realising the gain objective at the end of the holding period should be sold out at the market." He recommended a maximum holding period of 2-3 years for realising value.
Position sizing by conviction
A margin of safety of 50% or more supports 3-5% of the portfolio for maximum-conviction positions. A 30-50% margin warrants 2-3% as the standard opportunity sizing. A margin of 20-30% suggests 1-2%, given less certainty. A margin beloww 20% means watchlist only due to insufficient margin.
Essential guidance for U.S. investors in U.S. stocks
Regulatory framework
The Liberalised Remittance Scheme allows individuals to invest up to USD 250,000 per financial year (April to March). The TCS-free threshold increased to ₹10 lakh effective April 1, 2025. Investments above this threshold are subject to a 20% TCS, which is adjustable against income tax liability and not an additional U.S. tax.
Tax treatment
U.S. capital gains face a 0% rate since they are not taxed in the U.S. for Indian residents. Indian STCG on holdings held for less than 24 months falls under the slab rates and is added to the regular income. Indian LTCG on holdings held for over 24 months is taxed at 12.5%, reduced from 20% under Budget 2024. U.S. Dividend Withholding stands at 25% with the W-8BEN form or 30% without. Indian Dividend Tax is taxed at the applicable slab rate, with the full amount added to income.
Under the TAA, the 25% U.S. dividend withholding can be claimed as the Foreign Tax Credit using Form 111, which must be filed before IT. You declare the full dividend amount in U.S. dollars—Ia, but credit the U.S. tax paid to avoid double taxation.
Critical forms include Form W-8BEN, which you can submit through your brokerage to reduce withholding from 30% to 25%. Form 67 requires electronic filing before the ITR to claim FTC. Schedule FA mandates disclosure of all foreign assets. ITR-2 or ITR-3 is required for foreign investments.
The intrinsic value formulas compendium
DCF calculates Value = Σ [FCF/(1+WACC)^t] + Terminal Value/(1+WACC)^n. Terminal Value uses TV = FCF × (1+g) / (WACC - g). DDM Gordon Growth applies P = D₁ / (r - g). Graham Original uses V = EPS × (8.5 + 2g). Graham Modified calculates V = [EPS × (8.5 + 2g) × 4.4] / Y. Graham Number finds √(22.5 × EPS × Book Value). EPV equals Adjusted Earnings / WACC. WACC uses (E/V × Re) + (D/V × Rd × (1-T)). CAPM calculates Re = Rf + β(Rm - Rf). Margin of Safety equals (Intrinsic Value - Price) / Intrinsic Value × 100. Free Cash Flow equals EBIT(1-T) + D&A - CapEx - ΔNWC.
Current inputs for January 2026 show the risk-free rate at 4.25%, the equity risk premium at 4.33%, the AAA corporate bond yield at 5.35%, the market cost of equity at 8.6%, and the recommended terminal growth at 2-3%.
Intrinsic value investing works because it forces discipline in an emotional marketplace. The current market environment, with CAPE at 40 and the Buffett Indicator at all-time highs, demands heightened selectivity, larger margins of safety, and patience for the market'set'ss inevitable mood swings. For Indian investors, the framework applies directly to U.S. stocks. Calculate valuensic value in dollars, apply sector-appropriate margins of safety of 25-50%, structure your taxes efficiently using DTAA provisions, and think in decades rather than quarters. The most crucial insight isn't any formula. It's Graham's observation that "in the short run, the market is a voting machine, but in the long run it is a weighing machine." Your job is to calculate the weights accurately, buy only when prices offer substantial margins below those weights, and let time do the rest.
Disclaimer: The views and recommendations made above are those of individual analysts or brokerage companies, and not of Winvesta. We advise investors to check with certified experts before making any investment decisions.
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Table of Contents
The core principle of value investing is deceptively simple. Every stock has a true worth independent of its market price. Investors who buy below this intrinsic value will profit over time. Benjamin Graham, the father of value investing, made this the cornerstone of his investment philosophy. His teachings influenced Warren Buffett and generations of successful investors. For Indian investors venturing into U.S. markets, understanding the calculation of intrinsic value is essential. This holds especially true in January 2026, when the S&P 500's CAPE ratio approaches 40, nearing dot-com bubble levels. The Buffett Indicator sits at an all-time high of 223%. This framework will help you distinguish between speculation and investing, identify opportunities as they emerge, and protect capital through disciplined application of margin-of-safety principles.
Intrinsic value calculation represents one of the most powerful fundamental analysis tools for Indian investors seeking long-term wealth creation in the U.S. markets.
What intrinsic value means and why it matters
Intrinsic value represents the calculated true worth of a security based on its fundamental characteristics. It equals the present value of all cash the business will generate during its remaining life. As Buffett defines it: "Intrinsic value is the discounted value of the cash that can be taken out of a business during its remaining life." This value exists independently of what Mr Market offers on any given day.
Graham introduced the Mr Market analogy to explain this concept. Imagine you own a small share in a private business with a manic-depressive partner named Mr Market. Every day, he appears with an offer to buy your share or sell you his. Sometimes he offers reasonable prices. Often, his prices seem a little short of silly—the intelligent investor profits from MMrMarket's mood swings rather than participating in them. When MrMrarket panics and offers low prices, you buy. When he becomes euphoric and offers high prices, you consider selling.
The difference between investing and speculating comes down to valuation discipline. Graham wrote: "An investment operation is one which, upon thorough analysis, promises safety of principal and a satisfactory return. Operations not meeting these requirements are speculative." Speculators follow price momentum and crowd sentiment. Investors calculate what a business is worth and act only when prices diverge significantly from that value. Historical evidence overwhelmingly favours the intrinsic value approach. Graham's GEICO investment returned 500× over 25 years. Buffett's $1.3 billion Coca-Cola position grew to over $20 billion.
Understanding Benjamin Graham's seven criteria for selecting value stocks complements intrinsic value calculation by providing qualitative filters for stock selection.
The complete stock valuation methods toolkit
Discounted Cash Flow analysis
DCF remains the gold standard for intrinsic value calculation. The formula captures the fundamental truth that a business is worth the present value of all future cash it will generate.
Enterprise Value = Σ [FCF_t / (1+WACC)^t] + Terminal Value / (1+WACC)^n
Free Cash Flow equals EBIT × (1 - Tax Rate) + Depreciation & Amortisation - Capital Expenditures - Change in Working Capital. The weighted average cost of capital combines equity and debt costs using the formula: (E/V × Cost of Equity) + (D/V × Cost of Debt × (1 - Tax Rate)).
Terminal value often represents 60-80% of the total DCF value. Calculate it using the Gordon Growth method: FCF_n × (1 + g) / (WACC - g), where g is the perpetual growth rate capped at 2-3% and aligned with GDP growth. Current January 2026 inputs forU.S.S stocks include a 10-year Treasury yield of 4.25% as the risk-free rate. The equity risk premium is 4.33%, according to Damodaran's calculations. This yields a total market cost of equity around 8.6%.
Dividend Discount Model for income investors
For stable dividend payers, the Gordon Growth Model provides an elegant shortcut.
P = D₁ / (r - g)
Where D₁ is next year's expected dividend, r is the required return, and g is the dividend growth rate. This works beautifully for utilities, REITs, and established consumer staples with predictable payouts. Estimate the sustainable growth rate as g = (1 - Dividend Payout Ratio) × ROE.
Worked example for Target Corporation. Annual dividend stands at $4.48. Historical Dividend Growth equals 8%. Required return is 13%. D₁ = $4.48 × 1.08 = $4.84. Intrinsic value = $4.84 / (0.13 - 0.08) = $96.80. At a market price of approximately $135, Target would appear 40% overvalued by this metric. This illustrates why triangulation across methods matters.
Graham's intrinsic value formula
Benjamin Graham provided a simplified formula in The Intelligent Investor.
Original Formula: V = EPS × (8.5 + 2g)
The 8.5 represents the P/E ratio for a zero-growth company, implying an 11.76% earnings yield. The g equals the expected annual growth rate over 7-10 years. Graham later revised this to adjust for interest rates.
Modified Formula: V = [EPS × (8.5 + 2g) × 4.4] / Y
The 4.4 was the average AAA corporate bond yield in 1962. Y represents the current AAA yield. With the January 2026 AAA corporate bond yield at 5.35%, this adjustment significantly reduces valuations relative to the original formula.
Example for Coca-Cola. EPS = $2.50. Growth rate = 6.4%. Y = 5.35%. V = [$2.50 × (8.5 + 12.8) × 4.4] / 5.35 = $43.81.
The Graham Number offers another quick check: √(22.5 × EPS × Book Value Per Share). This represents the maximum price for a defensive investor.
Comparative valuation multiples
Relative valuation provides market-based sanity checks through comparable company analysis. January 2026 sector P/E ratios forU.S.S markets show Information Technology at 39, Consumer Discretionary at 30, Healthcare at 25, Energy at 19, Communication Services at 18, and Financials at 18.
EV/EBITDA multiples by sector range from 5-8× for Energy to 15-25× for Technology. When applying multiples, use the median of at least 5-10 comparable companies. Adjust for growth rate differences. Remember that capital structure differences make EV/EBITDA superior to P/E for cross-company comparisons.
Earnings Power Value for conservative analysis
Bruce Greenwald's EPV method assumes zero growth, making it inherently conservative.
EPV = Adjusted Earnings / WACC
Adjusted earnings start with normalised EBIT using 5-year average margins. Subtract maintenance capex and add back excess depreciation. If EPV exceeds the assets' reproduction cost, the company has a competitive advantage worth paying for. If not, the business may be a value trap.
The margin of safety imperative
Graham called the margin of safety the central concept of investment and devoted an entire chapter to it with that exact title. The formula is straightforward.
Margin of Safety (%) = (Intrinsic Value - Market Price) / Intrinsic Value × 100
Buffett explains it through engineering: "When you build a bridge, you insist it can carry 30,000 pounds, but you only drive 10,000-pound trucks across it. And that same principle works in investing." The margin accounts for estimation errors, unforeseen events, and the fundamental uncertainty of projecting future cash flows.
Required margins vary by company type. Blue-chip, stable companies require a 10-20% margin due to predictable earnings and strong moats. Mid-cap and moderate-risk companies require a 20-30% margin due to greater uncertainty and less analyst coverage. Small Caps and higher-risk names require a 30-50% margins due to limited track records and higher volatility. Growth companies require 40-50% or more, given the highly uncertain execution environment. Turnarounds and distressed situations need 50% or more since binary outcomes are possible.
Seth Klarman articulates why: "Benjamin Graham understood that an asset or business worth $1 today could be worth 75 cents or $1.25 in the near future. He also understood that he might even be wrong about today's value. Therefore, Graham had no interest in paying $1 for $1 of value."
Building conservative assumptions into every valuation
Small changes in DCF assumptions can cause significant valuation swings. A 0.5% change in the growth rate or discount rate can alter a company's value by 10-15%. Conservative assumptions protect optimistic forecasting.
Critical rules of thumb guide this process. Never rely on management's optimistic guidance, as they have incentives to be bullish. Cap terminal growth at GDP of 2-3% because no business outgrows the economy indefinitely. Haircut analyst estimates by 10-20% since Wall Street tends to be optimistic. Use higher discount rates for riskier companies,s with 8-10% for blue chips and 12-15% for speculative names. Assume competitive advantages fade because moats erode over time.
Stress-test every valuation using bear-case scenarios. What if revenue drops 20-30%? What if operating margins compress 500 basis points? What if the discount rate spikes 2-3%? At what assumptions does the investment still break even?
The range of values approach.
Single-point estimates create false precision. Build valuation ranges through sensitivity and scenario analyses (bear, base, and bull cases weighted 20%, 60%, and 20%), and triangulate across multiple methods. The football field chart visualises this by showing the DCF range, the comparable companies' range, and the asset value side by side. Identify where values cluster to define your confidence zone. Investigate outliers.
When methods give wildly different results, widen your required margin of safety. When they converge, you can proceed with more confidence.
Current market valuation reality check for January 2026
The 10-Year Treasury stands at 4.25%, compared with a historical average of approximately 4.0%, which appears elevated. The Equity Risk Premium is 4.33%, versus a 4.25% historical average, which seems normal. S&P 500 Trailing P/E ranges from 28 to 31, significantly above the historical average of 16.2. S&P 500 Forward P/E is 22.1, up from the historical average of 18.8. Shiller CAPE approaches 40, compared to a historical average of 17.3, near a record at the 99th percentile. The Buffett Indicator is at 223-230%, above the 80-100% historical average and at an all-time high. Price-to-Book hits 5.6 versus 2.9 historical average, near record. Dividend Yield is at 1.13%, near the record low of 2.88% and below the historical average.
The CAPE ratio of approximately 40 is the second-highest in 155 years. Only the dot-com bubble peak of 44.19 in 2000 exceeded it. The Buffett Indicator at 223% sits 77% above its historical trend line. Every prior instance at similar levels preceded a 25% or greater decline.
For intrinsic value investors, current conditions demand elevated selectivity and larger margins of safety. Sectors trading at fairer valuations include Energy, Communication Services, and Real Estate. The most expensive sectors are Information Technology and Industrials.
Practical calculation walkthrough using Coca-Cola
Current Data for January 2026 shows Stock Price at approximately $66-70, EPS TTM at roughly $2.50, Dividend at $1.94 annually, 5-Year EPS Growth at 6.4%, and Book Value Per Share at approximately $6.
Method 1, using DCF, yields $52.96. Method 2, using DCF Moderate, produces $82.78. Method 3, using DDM with 6% return assumption, shows $67.33. Method 4, using the Graham Modified Formula, ranges from $43.81 to $ 53.25. Method 5, using the Graham Number, yields $18.37. Meth6, using the industry average P/EE/E multiple, shows $50.00.
Triangulated Range ranges from $44 to $ 83 per share. Midpoint reaches approximately $55. The current price is roughly $68.
The assessment indicates that, at current prices, Coca-Cola is fairly valued to slightly overvalued. Using the conservative intrinsic value of $55, the price-to-value margin is -24%, as the cost exceeds the value. For a 25% margin of safety, your buy price target would be $55 × 0.75 = $41.25.
This illustrates why patience matters. Quality companies rarely trade at deep discounts, except during market panics such as March 2020, when even blue chips fell by more than 30%.
The buy, hold, and sell decision framework
When to buy
Buffett's criteria remain timeless. You can sensibly calculate earnings for a minimum of 5 years. The stock trades at a reasonable price relative to your bottom-bound estimate. You understand the business. Management has integrity. Price provides a significant margin of safety.
Quantitative thresholds guide decisions. Price should sit at least 20-50% below intrinsic value. The margin of safety should be at least 20% for quality companies and 30-50% for riskier names. A catalyst for value recognition should appear within 2-3 years. Strong fundamentals should include an ROE above 15%, reasonable debt levels, and consistent margins.
When to sell
Buffett says, "our favourite holding period is forever," but identifies appropriate selling times. Sell when the stock reaches its intrinsic value with no remaining margin of safety. Sell when a better opportunity exists elsewhere. Sell when fundamentals deteriorate. Sell when your original thesis breaks.
Graham's practical rule states: "Purchases not realising the gain objective at the end of the holding period should be sold out at the market." He recommended a maximum holding period of 2-3 years for realising value.
Position sizing by conviction
A margin of safety of 50% or more supports 3-5% of the portfolio for maximum-conviction positions. A 30-50% margin warrants 2-3% as the standard opportunity sizing. A margin of 20-30% suggests 1-2%, given less certainty. A margin beloww 20% means watchlist only due to insufficient margin.
Essential guidance for U.S. investors in U.S. stocks
Regulatory framework
The Liberalised Remittance Scheme allows individuals to invest up to USD 250,000 per financial year (April to March). The TCS-free threshold increased to ₹10 lakh effective April 1, 2025. Investments above this threshold are subject to a 20% TCS, which is adjustable against income tax liability and not an additional U.S. tax.
Tax treatment
U.S. capital gains face a 0% rate since they are not taxed in the U.S. for Indian residents. Indian STCG on holdings held for less than 24 months falls under the slab rates and is added to the regular income. Indian LTCG on holdings held for over 24 months is taxed at 12.5%, reduced from 20% under Budget 2024. U.S. Dividend Withholding stands at 25% with the W-8BEN form or 30% without. Indian Dividend Tax is taxed at the applicable slab rate, with the full amount added to income.
Under the TAA, the 25% U.S. dividend withholding can be claimed as the Foreign Tax Credit using Form 111, which must be filed before IT. You declare the full dividend amount in U.S. dollars—Ia, but credit the U.S. tax paid to avoid double taxation.
Critical forms include Form W-8BEN, which you can submit through your brokerage to reduce withholding from 30% to 25%. Form 67 requires electronic filing before the ITR to claim FTC. Schedule FA mandates disclosure of all foreign assets. ITR-2 or ITR-3 is required for foreign investments.
The intrinsic value formulas compendium
DCF calculates Value = Σ [FCF/(1+WACC)^t] + Terminal Value/(1+WACC)^n. Terminal Value uses TV = FCF × (1+g) / (WACC - g). DDM Gordon Growth applies P = D₁ / (r - g). Graham Original uses V = EPS × (8.5 + 2g). Graham Modified calculates V = [EPS × (8.5 + 2g) × 4.4] / Y. Graham Number finds √(22.5 × EPS × Book Value). EPV equals Adjusted Earnings / WACC. WACC uses (E/V × Re) + (D/V × Rd × (1-T)). CAPM calculates Re = Rf + β(Rm - Rf). Margin of Safety equals (Intrinsic Value - Price) / Intrinsic Value × 100. Free Cash Flow equals EBIT(1-T) + D&A - CapEx - ΔNWC.
Current inputs for January 2026 show the risk-free rate at 4.25%, the equity risk premium at 4.33%, the AAA corporate bond yield at 5.35%, the market cost of equity at 8.6%, and the recommended terminal growth at 2-3%.
Intrinsic value investing works because it forces discipline in an emotional marketplace. The current market environment, with CAPE at 40 and the Buffett Indicator at all-time highs, demands heightened selectivity, larger margins of safety, and patience for the market'set'ss inevitable mood swings. For Indian investors, the framework applies directly to U.S. stocks. Calculate valuensic value in dollars, apply sector-appropriate margins of safety of 25-50%, structure your taxes efficiently using DTAA provisions, and think in decades rather than quarters. The most crucial insight isn't any formula. It's Graham's observation that "in the short run, the market is a voting machine, but in the long run it is a weighing machine." Your job is to calculate the weights accurately, buy only when prices offer substantial margins below those weights, and let time do the rest.
Disclaimer: The views and recommendations made above are those of individual analysts or brokerage companies, and not of Winvesta. We advise investors to check with certified experts before making any investment decisions.
Ready to earn on every trade?
Invest in 11,000+ US stocks & ETFs
