Graham Number Calculator
Benjamin Graham's fair value: square root of 22.5 multiplied by EPS and book value per share; compare to current price.
How It Works
Enter the company's trailing twelve month earnings per share (EPS), book value per share (BVPS), and current stock price. The Graham Number requires both EPS and BVPS to be positive: if either is negative or zero, the calculation cannot be performed and will display as N/A.
The calculator computes the Graham Number using Benjamin Graham's formula: the square root of 22.5 multiplied by EPS multiplied by BVPS. It then compares this fair value estimate to the current price to determine if the stock is undervalued or overvalued. The margin of safety percentage shows how much discount or premium the current price represents relative to Graham's valuation. Implied P/E and P/B ratios are also calculated from the formula results.
FAQ
What is the Graham Number?
The Graham Number is a fair value estimate for a stock developed by Benjamin Graham, the father of value investing. It combines a company's earnings per share (EPS) and book value per share (BVPS) into a single valuation: the square root of (22.5 multiplied by EPS multiplied by BVPS). It represents the maximum price a defensive investor should pay for a stock.
What does the 22.5 constant mean?
The constant 22.5 comes from Graham's maximum acceptable P/E ratio of 15 and his maximum acceptable P/B ratio of 1.5. Multiplying them (15 × 1.5 = 22.5) ensures that both ratios are respected simultaneously. A stock trading at the Graham Number would have a P/E of exactly 15 and a P/B of exactly 1.5.
How should I interpret the margin of safety?
The margin of safety represents the percentage discount of the current price relative to the Graham Number. A positive margin means the stock trades below fair value (undervalued). A margin above 33% is considered adequate, 15% to 33% is moderate, and below 15% is thin. A negative margin indicates the stock is overvalued according to the Graham formula.
Does the Graham Number work for all stocks?
No. The Graham Number only works for companies with positive earnings and positive book value. It is not suitable for companies with negative EPS or negative book value (common in early stage tech companies, businesses with few tangible assets, or firms with large intangible assets). It was designed for industrial and manufacturing companies with tangible assets.
What are the limitations of the Graham Number?
The Graham Number is a simplified valuation tool that does not account for growth rates, competitive advantages, industry dynamics, or intangible assets. It was developed for a different era of investing and may undervalue modern technology companies or businesses with few tangible assets. It should be used alongside other valuation methods, not as a standalone buy or sell signal.
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