From what I read about value investing, value investors seek to buy stocks that sell below their "intrinsic value". To that end, they use stock valuation models to find the all-important "intrinsic value". Some of the simpler stock valuation models I read about are: dividend discount model (DDM), discounted cash flow model (DCF), and residual income valuation (RIV). These models produce an output which is the "intrinsic value". However, these models always require a "discount rate" as one of the inputs. This "discount rate" requirement is the source of my confusion.
As far as I am aware, the "discount rate" is merely a speculative guess, and to make matters worse, a slight error in the discount rate will have a large effect on the calculated intrinsic value. The capital asset pricing model (CAPM) isn't going to be helpful in finding the discount rate, because the "market risk premium" is uncertain (and also because most value investors seem to think that the CAPM is nonsense). "Garbage in, garbage out" looks like a really big risk here.
Given the unacceptably large uncertainty of the discount rate which causes an unacceptably large uncertainty in the intrinsic value, why do value investors obsess over finding the intrinsic value?
If it were me, I'd rearrange all these valuation formulas to find the discount rate instead of the intrinsic value. I'd run these models in reverse. I'd substitute the current stock price for the "intrinsic value" to see what "discount rate" (i.e. expected return) comes out of these valuation models. If the expected return is higher than what I would normally accept, then the stock is undervalued. Otherwise, the stock is overvalued. In this scheme, there is no need to think about the "intrinsic value". And yet when I look around, value investors seem to obsess over "intrinsic values"… so I think I might be wrong. Is my proposed method wrong in any way?