# Intrinsic Investor - Complete AI Documentation

## Overview

Intrinsic Investor (www.intrinsic-investor.com) is an independent stock analysis platform specializing in intrinsic value calculations for value investors. We provide institutional-grade valuation tools at accessible prices.

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## Valuation Methodology

### 1. Discounted Cash Flow (DCF)

Our DCF model uses:
- **Unlevered Free Cash Flow**: FCF + Interest × (1 - Tax Rate)
- **WACC Calculation**: Market-value weighted cost of equity and debt
- **Terminal Value**: Gordon Growth Model with sector-specific terminal growth rates
- **Monte Carlo Simulation**: 2,000 iterations to model parameter uncertainty

Terminal Growth Rates by Sector:
- Technology: 2.5% (disruption risk caps perpetuity)
- Healthcare: 3.0% (demographics tailwind)
- Utilities: 1.5% (regulated, population growth only)
- Consumer Defensive: 2.0% (stable demand)
- Financial Services: 2.5%
- Industrials: 2.0%
- Basic Materials: 1.5%
- Energy: 1.5%
- Real Estate: 2.0%
- Communication Services: 2.5%
- Consumer Cyclical: 2.0%

### 2. Graham Number

Formula: √(22.5 × EPS × Book Value Per Share)

The constant 22.5 = 15 (P/E) × 1.5 (P/B), representing Benjamin Graham's margin-of-safety thresholds. We use the pure formula without quality adjustments to preserve its conservative intent.

### 3. Owner Earnings (Buffett Method)

Formula: Net Income + Depreciation + Amortization - Average CapEx

This estimates the cash a company can distribute to owners while maintaining its competitive position. We use 5-year average CapEx to smooth cyclical variations.

### 4. Relative Valuation

Compares the stock to sector peers using:
- P/E ratio vs. sector average
- EV/EBITDA vs. sector multiple
- Dynamic sector multiples from ETF data (XLK, XLV, XLF, etc.)

### 5. Dividend Discount Model (DDM)

For dividend-paying stocks:
- Historical dividend CAGR (5-year)
- Gordon Growth Model: D1 / (r - g)
- Growth capped at 8% for model stability

### 6. PEG Ratio Valuation

Peter Lynch method:
- Fair P/E = Growth Rate (PEG = 1 principle)
- Maximum P/E capped at 35x
- Growth estimates from analyst consensus or historical trend

### 7. Quality-Adjusted Value

Modern adaptation of Graham's work:
- Adjusts multiplier based on ROE, growth rate, operating margin
- Higher-quality companies can justify higher multiples
- Maximum constant: 45 (30x P/E × 1.5x P/B)

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## Industry-Specific Models

### Banks
P/TBV = ROE / Cost of Equity (Gordon Growth derivation)
- Tangible book = Book Value × 0.9
- Cost of equity fixed at 10%
- DCF not used (deposits are not debt)

### REITs
- Uses FFO (Funds From Operations) instead of EPS
- Actual FFO when available, otherwise Net Income + Depreciation
- Lower WACC due to real estate stability

### Utilities
- Primary: DDM with 3.5% regulated dividend growth
- Cross-check: Earnings yield at 5.5% target
- Beta capped at 1.0

### Insurance
- P/BV with ROE adjustment
- P/E cross-check (8-15x based on ROE)
- 70% P/BV / 30% P/E weighting

### Cyclicals
- Normalized P/E using 5-year average earnings
- Book value floor as downside protection
- Industries: Steel, Oil & Gas, Mining, Homebuilders, Airlines, Autos

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## Quality Scoring System

Base score starts at 20 (companies must earn their score).

**Positive Factors:**
- ROE > 25%: +12 points (exceptional)
- ROE > 20%: +10 points (excellent)
- ROE > 15%: +7 points (good)
- ROIC used with 2x weight vs ROE
- Operating margin > 30%: +8 points (moat indicator)
- FCF > EPS: +5 points (quality earnings)
- Low debt (D/E < 0.3): +5 points

**Negative Factors:**
- D/E > 2.0: -8 points
- D/E > 3.0: -12 points
- Negative equity: -10 points
- FCF << EPS: -5 points (potential earnings manipulation)
- Declining ROE trend: -6 to -12 points

**Distribution:**
- 75-100: Top 10% quality
- 60-75: Good quality
- 40-60: Average
- Below 40: Below average

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## Risk Scores

### Piotroski F-Score
9-point scoring system for financial health:
1. Positive net income
2. Positive operating cash flow
3. ROA improvement
4. OCF > Net Income (accrual quality)
5. Decreasing leverage
6. Improving current ratio
7. No share dilution
8. Improving gross margin
9. Improving asset turnover

Applied conditionally to value stocks (P/B < 1.5 or P/E < 15).

### Altman Z-Score
Bankruptcy probability indicator:
- Z > 2.99: Safe zone (investable)
- 1.81 < Z < 2.99: Grey zone (warning)
- Z < 1.81: Distress zone (elevated bankruptcy risk)

Formula: 1.2×(Working Capital/Assets) + 1.4×(Retained Earnings/Assets) + 3.3×(EBIT/Assets) + 0.6×(Market Cap/Total Liabilities) + 1.0×(Revenue/Assets)

Not applicable to financial sector companies.

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## Trading Signals (QVM Model)

Our quantitative model combines:
- **Quality**: Composite quality score, earnings quality, accruals
- **Value**: Multi-method intrinsic value vs. price
- **Momentum**: 12-1 month momentum with crash protection

**Signal Generation:**
- Long signals: High quality + undervalued + positive momentum
- Short signals: Low quality + overvalued + negative momentum
- Hedging: Automatic during market stress (VIX > 30, SPY drawdown > 10%)

**Risk Controls:**
- Altman Z-Score filter (excludes distress zone)
- Transaction cost hurdle
- Turnover budget constraints
- Position sizing by conviction

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## Data Sources

1. **Yahoo Finance**: Real-time quotes, fundamental data, analyst estimates
2. **SEC EDGAR**: Company filings, insider transactions
3. **FRED**: Treasury yields, inflation data, macroeconomic indicators
4. **Company Reports**: Annual reports, earnings calls

Data is updated daily for quotes and weekly for fundamental metrics.

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## Limitations & Disclaimers

1. Valuations are estimates, not predictions
2. Historical data does not guarantee future results
3. Models have inherent assumptions that may not hold
4. Small-cap and emerging market data may be less reliable
5. Not a registered investment advisor - for educational purposes only

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## API Access

Authenticated API endpoints available for:
- Stock data: /api/stocks/[symbol]
- Screener: /api/screener
- Valuations: /api/stocks/thesis

Rate limited. Contact support@intrinsic-investor.com for API access.

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## Content Licensing

Educational content may be cited with attribution:
"Source: Intrinsic Investor (www.intrinsic-investor.com)"

For commercial use or data licensing, contact: support@intrinsic-investor.com

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## Site Structure

- / - Home dashboard
- /stocks - Stock search and listing
- /stocks/[symbol] - Individual stock analysis
- /screener - Advanced stock screener
- /signals - Trading signals
- /learn - Educational guides
- /learn/intrinsic-value - How to calculate intrinsic value
- /learn/stock-screener - How to use a stock screener
- /learn/value-investing - Value investing fundamentals
- /glossary - Investing terminology
- /methodology - Detailed valuation methodology
- /pricing - Subscription plans
- /about - Company information

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## Contact Information

- Website: www.intrinsic-investor.com
- Support: support@intrinsic-investor.com
- Location: United Kingdom

Last updated: December 2025