Calculate the Graham Number to determine the fair value of stocks using Benjamin Graham's legendary value investing formula.
Annual earnings per share
Book value per share
Current market price (optional)
$0.00
Enter stock data to see analysis
The Graham Number is a figure that measures a stock's fundamental value by taking into account the company's earnings per share (EPS) and book value per share (BVPS). Developed by Benjamin Graham, known as the "father of value investing" and mentor to Warren Buffett, this formula provides a conservative estimate of a stock's intrinsic value.
Graham believed that investors should purchase stocks trading at or below this number to ensure a margin of safety. The Graham Number represents the maximum price an investor should pay for a stock according to Graham's value investing principles.
Benjamin Graham emphasized buying stocks with a "margin of safety" - purchasing them below their intrinsic value to protect against losses and increase potential gains.
The Graham Number formula is straightforward but powerful:
Graham Number = √(22.5 × EPS × BVPS)
EPS = Earnings Per Share (annual)
BVPS = Book Value Per Share
22.5 = Constant derived from Graham's criteria (P/E of 15 × P/B of 1.5)
The constant 22.5 comes from Benjamin Graham's conservative investment criteria:
Divide the current stock price by the Graham Number. If the ratio is less than 1.0, the stock may be undervalued according to Graham's criteria.
When a stock trades below its Graham Number, it suggests the stock may be a value investment opportunity. This provides a margin of safety for investors.
A stock trading near its Graham Number is fairly valued according to Graham's conservative criteria.
When the stock price exceeds the Graham Number, it may be overvalued or the market may be pricing in future growth not captured by current fundamentals.
The Graham Number is one tool among many. Use it alongside other fundamental analysis, industry research, and your investment strategy. No single metric should drive all investment decisions.
Earnings Per Share (EPS): $5.00
Book Value Per Share (BVPS): $50.00
Current Stock Price: $75.00
Calculation:
Graham Number = √(22.5 × 5.00 × 50.00)
Graham Number = √(5,625)
Graham Number = $75.00
Price to Graham Number:
$75.00 ÷ $75.00 = 1.00
✓ This stock is trading at fair value according to Graham's criteria.
The Graham Number works best for established companies with consistent earnings. It may not be suitable for growth stocks, startups, or companies with negative earnings.
The formula uses current fundamentals and doesn't factor in future growth potential. High-growth companies often trade above their Graham Number.
Different industries have different typical P/E and P/B ratios. Technology companies often trade at higher multiples than industrial companies.
Graham developed this formula in a different market era. Modern markets may price stocks differently than in Graham's time.
You can find EPS and book value per share in company financial statements, on financial websites like Yahoo Finance, Bloomberg, or your brokerage platform. Look for the most recent annual or quarterly data.
Benjamin Graham preferred using trailing (historical) EPS as it's based on actual results rather than estimates. However, some investors use forward EPS for additional perspective.
Yes, if either EPS or book value is negative, the Graham Number cannot be calculated using the standard formula. This typically indicates the company is unprofitable or has negative equity.
While markets have evolved since Graham's time, his principles of value investing remain relevant. The Graham Number is best used as one tool among many in a comprehensive investment analysis.
Complement the Graham Number with other valuation metrics like P/E ratio, P/B ratio, debt-to-equity ratio, return on equity (ROE), and free cash flow analysis for a complete picture.
Use our Graham Number calculator to identify potentially undervalued stocks and make informed investment decisions based on time-tested value investing principles.
