What is the Benjamin Graham Calculator?

The Benjamin Graham Calculator is a tool designed to help investors calculate the intrinsic value of a stock using the formula developed by Benjamin Graham, the father of value investing. This calculator considers factors such as Earnings per Share (EPS), growth rate, and the current yield on AAA corporate bonds to determine whether a stock is overvalued or undervalued.

How to Use the Benjamin Graham Calculator

Using the Benjamin Graham Calculator is straightforward. Simply input the stock's current share price, EPS for the last four quarters, expected growth rate (g), and the current yield on AAA corporate bonds (Y). The calculator will instantly display the intrinsic value per share and whether the stock is overvalued or undervalued.

Step-by-Step Instructions:

• Current Share Price: Enter the current market price of the stock.
• EPS for the Last Four Quarters: Enter the earnings per share over the last four quarters.
• Expected Growth Rate (g): Enter the expected growth rate of the company.
• Current Yield on AAA Corporate Bonds (Y): This value is set to 4.22 by default but can be adjusted based on current market conditions.

Understanding the Benjamin Graham Formula

The Benjamin Graham intrinsic value formula is a cornerstone of value investing. It combines EPS, growth rate, and bond yields to estimate a stock's fair value. The formula used in this calculator is:

Intrinsic Value = EPS × (8.5 + 2g) × 4.4 / Y

Where:

• EPS: Earnings per share
• g: Expected growth rate
• Y: Current yield on AAA corporate bonds

Why EPS and Growth Rate Matter in Stock Valuation

Earnings per Share (EPS) and growth rate are critical in determining a company's intrinsic value. EPS provides insight into a company's profitability, while the growth rate indicates future performance. Together, they help investors assess whether a stock is worth its current price.

The Role of AAA Corporate Bond Yields in Valuation

AAA corporate bond yields represent the safest investment in bonds and serve as a benchmark for determining the risk premium of stocks. A higher bond yield can lower the intrinsic value of a stock, reflecting the relative risk of investing in equities versus bonds.

When to Use the Benjamin Graham Calculator

This calculator is especially useful for value investors looking to make informed decisions about stock purchases. By comparing the intrinsic value with the current share price, investors can determine if a stock is undervalued, offering a potential buying opportunity, or overvalued, indicating a potential risk.

Common Questions about the Benjamin Graham Calculator

What is the difference between intrinsic value and market value?

Intrinsic value is the true value of a stock based on fundamentals, while market value is the current price at which the stock is trading.

Can the Benjamin Graham formula be used for all stocks?

The formula is most effective for stable, mature companies with consistent earnings.

How accurate is the Benjamin Graham Calculator?

The calculator provides a reasonable estimate of intrinsic value, but investors should consider other factors like market conditions and company-specific risks.