Graham Number Calculator
Calculate Benjamin Graham's intrinsic value using the Graham Number formula. This conservative valuation method helps identify potentially undervalued stocks for value investing.
Financial Metrics
Current Market Price
Graham Number Results
Graham Number:
$0.00
Current Price:
$0.00
Valuation Status:
N/A
Investment Analysis
Upside Potential:
0.00%
Margin of Safety:
0.00%
Investment Decision:
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Business Insights
Quality Score:
N/A
Risk Assessment:
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Graham Rating:
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Understanding the Graham Number
The Graham Number is a conservative stock valuation formula created by Benjamin Graham, the father of value investing. It calculates the maximum price an investor should pay for a stock based on its earnings and book value, providing a margin of safety for long-term investors.
Graham Number Formula
Original Formula
- Graham Number = v(22.5 × EPS × BVPS)
- EPS = Earnings Per Share
- BVPS = Book Value Per Share
- 22.5 = Graham's multiplier (15 × 1.5)
Interpretation
- Price below Graham Number = Potentially undervalued
- Price above Graham Number = Potentially overvalued
- Provides conservative intrinsic value estimate
- Built-in margin of safety
Why the Graham Number Works
Conservative Approach
Graham's philosophy of value investing
Earnings Component
- 15x P/E ratio (reasonable but not excessive)
- Focuses on sustainable earnings
- Accounts for business quality
- Historical earnings stability
Book Value Component
- 1.5x P/B ratio (conservative valuation)
- Provides downside protection
- Asset backing for the stock
- Liquidation value consideration
Graham Number Limitations
Outdated Multipliers
- 22.5 multiplier from 1960s market
- Modern markets may justify higher multiples
- Doesn't account for growth or inflation
- May be too conservative for growth stocks
Accounting Issues
- Book value can be manipulated
- Intangible assets not properly valued
- Earnings quality varies
- One-time charges affect EPS
Modern Applications
| Application | Purpose | Advantages | Considerations |
|---|---|---|---|
| Screening Tool | Identify undervalued stocks | Simple and objective | Too many false positives |
| Margin of Safety | Determine safe entry price | Built-in conservatism | May miss growth opportunities |
| Portfolio Allocation | Position sizing | Risk management | Not a complete analysis |
Graham Number vs Other Valuation Methods
vs P/E Ratio
- Graham Number combines P/E and P/B
- More comprehensive than single ratios
- Incorporates both earnings and assets
- Provides intrinsic value estimate
vs DCF Analysis
- Graham Number is simpler and faster
- DCF requires detailed assumptions
- Graham provides conservative estimate
- DCF can be more accurate with good inputs
Successful Graham Number Stocks
Historical Examples
- Berkshire Hathaway (early years)
- Apple (during market lows)
- Many blue-chip stocks during crises
- Companies with strong fundamentals
Key Characteristics
- Strong balance sheets
- Consistent earnings
- Quality management
- Temporary market dislocations
Key Takeaways for Graham Number
- Graham Number = v(22.5 × EPS × BVPS) provides a conservative intrinsic value estimate
- Stocks trading below their Graham Number may be undervalued with margin of safety
- The formula combines reasonable P/E (15x) and P/B (1.5x) ratios for conservatism
- Best used for stable, mature companies rather than high-growth stocks
- Should be used as part of a comprehensive value investing strategy
- The 22.5 multiplier may be outdated for today's market conditions
- Graham Number works best when combined with qualitative analysis
- Provides a mathematical anchor for determining margin of safety