Intrinsic value is the true or real value given a hypothetically complete understanding of the asset’s investment characteristics. Intrinsic value might be different from the current (market) price of an asset.
Perceived mispricing is the difference between the estimated intrinsic value and the market price of an asset. It can be expressed as:
VE – P = (V – P) + (VE – V)
For active investing to be successful, an analyst’s estimates must be different from consensus estimate and must be correct.