Fair Value
Definition
The estimated intrinsic worth of an asset based on fundamental analysis, as distinct from its current market price.
Explanation
Fair value represents what a rational, informed buyer would pay for an asset. It's estimated through various methods: discounted cash flow (DCF), comparable company analysis, precedent transactions, and asset-based valuation. When market price is below fair value, the asset is 'undervalued' — a buying opportunity for value investors. When above, it's 'overvalued.' The margin of safety concept (Benjamin Graham) suggests buying only when price is significantly below fair value to protect against estimation errors.