Influence of Stocks Intrinsic Valuation on Investment Decision Making: A Literature Review

Abstract

All over the world, investment decisions are regarded as critical decisions. Investors prior to the investment decision would like to know the possible risk and returns associated with the kind of investment to be undertaken. Investors make an excellent investment decision based on facts and figures. Since an investor cannot just by looking at a stock say whether it is overvalued, undervalued or at a fair value. This study is based on a literature review determining the intrinsic value of a stock using the Discounted Cash Flow model, with a particular emphasis on the Internal Rate of Return (IRR) and Net Present Value (NPV) approaches, and their influence on investment decision-making. This study recommends that for investors to make a profitable investment decision, they must focus on investments with intrinsic value equal or higher than the market price of stocks.

The Influence of Investment Decisions, Free Cash Flow, and Debt Policy on the Financial Performance of Construction Companies

“…This implies that the FCF variable substantially affects the company's financial performance. Managers are not distributing the remaining company cash to shareholders as dividends; instead, they use this surplus cash to invest in the capital structure or other areas (Mensah et al, 2022). This suggests that Free Cash Flow is likely being used in the capital structure or other investments, contributing to an improvement in the companys financial performance because the infusion of capital into the capital structure results in innovations in the products it sells.…”

“…(Raheman et al, 2010 2020). Therefore, the company's debt policy can influence its financial performance (Mensah et al, 2022). Kristiana (2014) Such findings demonstrate that the firm's financial situation has been significantly impacted by the debt policy.…”

The Influence of the Intrinsic Value of Stocks on Its Market Price

“…6. Mensah et al (2022). "Recommends that for investors to make a profitable investment decision, they must focus on investments with an intrinsic value equal to or higher than the market price of stocks."…”

The Effect of Debt-to-Equity Ratio, Return on Asset, Current Ratio, and Total Asset Turnover on Stock Price: The Intervening Effect of Intrinsic Value in Indonesia’s Retail Business

“…However, the market value does not necessarily reflect the actual worth of the shares. The true value of a stock is its intrinsic value (Anusha & Murugan, 2020;Kennedy & Sinaga, 2022), which plays a significant role in investors' decision-making regarding stock investments (Artikis & Kampouris, 2022;Mensah et al, 2022;Sharafoddin & Emsia, 2016). When investing in stocks, it is crucial to understand fundamental analysis.…”