If the intrinsic value of a stock is $51 and the current market price is $55. Doesn't this mean the stock is overvalued? should I advice to Sell the stock?

Question

DCF model question.

Answer 1

This may mean you should sell the stock,

or not.

 

DCF or discounted cash flow models are useful for understanding how firms should be valued but it is not full proof or absolute.  Depending on one analyst's forecast for future cash flow versus another's, one may arrive at a value of $51 and another may value the same stock at $60 all because he expects higher cash flows in the future.  

 

In the random walk theory of the stock market, the market price of any stock is the combined opinion of millions of investors and analysts who try to project the stream of future cash flows for each company.  At any given time the market price is the "right" price.  If you think the market is too optimistic about future cash flow for a company, you might consider the stock overvalued and sell it.  If you are right - you make money.