Graham Number — Smart Financial Analysis
Determine the fair value of a stock based on Benjamin Graham's value investing principles
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The Graham Number = √(22.5 × EPS × BVPS). Margin of safety is the percentage difference between a stock. The Graham Number is a simplified intrinsic value formula using only EPS and BVPS. Screen for stocks where current price is below the Graham Number.
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Why: The Graham Number = √(22.5 × EPS × BVPS). The 22.5 comes from Benjamin Graham\
How: Enter Earnings Per Share (EPS), Book Value Per Share, Current Stock Price to get instant results. Try the preset examples to see how different scenarios affect the outcome, then adjust to match your situation.
Run the calculator when you are ready.
📈 Stock Examples — Click to Load
For educational purposes only — not financial advice. Consult a qualified advisor before making decisions.
💡 Money Facts
Graham Number analysis is used by millions of people worldwide to make better financial decisions.
— Industry Data
Financial literacy can increase household wealth by up to 25% over a lifetime.
— NBER Research
The average American makes 35,000 financial decisions per year—many can be optimized with calculators.
— Cornell University
Globally, only 33% of adults are financially literate, making tools like this essential.
— S&P Global
The Graham Number, from Benjamin Graham's "The Intelligent Investor" (1949), calculates the maximum fair price for a stock: √(22.5 × EPS × BVPS). Warren Buffett's mentor believed stocks should be bought with a 'margin of safety' — significantly below intrinsic value. Apple's Graham Number is just $23.48 vs a $190 stock price, showing how growth stocks don't fit Graham's value framework. This formula works best for value stocks.
📊 Key Stats
📐 The Formula
Graham Number = √(22.5 × EPS × Book Value Per Share)
The 22.5 = 15 (max P/E) × 1.5 (max P/B). Margin of Safety = ((Graham Number − Current Price) / Current Price) × 100%
📖 How the Graham Number Works
Graham combined his P/E ≤ 15 and P/B ≤ 1.5 constraints into one formula. Multiply 22.5 by EPS and BVPS, then take the square root. The result is the maximum price a defensive value investor should pay. Stocks trading below this number offer a margin of safety.
Step-by-Step Derivation
- From P/E ≤ 15: Price ≤ 15 × EPS
- From P/B ≤ 1.5: Price ≤ 1.5 × BVPS
- Multiply constraints: Price² ≤ (15 × EPS) × (1.5 × BVPS)
- Simplify: Price² ≤ 22.5 × EPS × BVPS
- Take square root: Price ≤ √(22.5 × EPS × BVPS)
- The maximum price is the Graham Number
🎯 Interpretation
- • Below Graham Number: Potentially undervalued — positive margin of safety
- • At Graham Number: Fairly valued by Graham's criteria
- • Above Graham Number: Overvalued — negative margin of safety; growth stocks often fall here
✅ Best Use Cases
The Graham Number works best for: banks, industrials, retailers with tangible assets, and stable dividend payers. It fails for tech companies (low BVPS), negative earnings, or high-growth firms with premium valuations.
| Industry | Typical P/E | Typical P/B | Graham Fit |
|---|---|---|---|
| Banking | 8-12 | 0.8-1.2 | Very Effective |
| Manufacturing | 12-18 | 1.5-3.0 | Very Effective |
| Retail | 12-20 | 2.0-4.0 | Moderately Effective |
| Technology | 25-40+ | 4.0-10.0+ | Limited |
| Utilities | 15-20 | 1.5-2.5 | Effective |
💡 Expert Tips
Screen for Value
Use the Graham Number to screen for stocks trading below fair value. Combine with quality metrics: low debt, positive FCF.
Adjust for Cyclicals
For cyclical companies, use average EPS over 5–10 years instead of trailing twelve months.
Look for 20%+ Margin
Graham advocated buying with at least 20-50% margin of safety. A stock 30% below its Graham Number is a stronger value candidate.
Avoid Value Traps
A stock far below Graham Number may be a bargain or a value trap. Investigate deteriorating fundamentals before buying.
📋 Practical Applications
Portfolio Construction
Use the Graham Number to build a diversified portfolio of value stocks meeting Graham's criteria. Focus on companies trading below intrinsic value for safety and upside potential.
Comparative Analysis
Compare Graham Numbers across companies in the same industry to identify which offer the best value relative to peers. Highlights undervalued opportunities.
Selling Discipline
When a stock rises above its Graham Number by a significant margin, consider taking profits or reducing position size. Graham advocated selling when price exceeds fair value.
Recalculation
Recalculate quarterly after earnings reports. Significant changes in EPS or BVPS materially affect the Graham Number. Update after major corporate events.
🔧 How to Use This Calculator
- Enter EPS: Use the company's most recent annual earnings per share from the income statement.
- Enter BVPS: Book value per share = total shareholders' equity ÷ outstanding shares.
- Enter Current Price: The stock's current market price to calculate margin of safety.
- Optional — Outstanding Shares: For total intrinsic value (Graham Number × shares).
- Click Calculate: Results auto-update with a 500ms debounce. Review Graham Number, margin of safety, and valuation.
- Load Examples: Click Apple, JPMorgan, Walmart, Pfizer, Berkshire, or Small Cap to see real-world scenarios.
❓ Frequently Asked Questions
What is the Graham Number formula?
The Graham Number = √(22.5 × EPS × BVPS). The 22.5 comes from Benjamin Graham's maximum P/E of 15 multiplied by his maximum P/B of 1.5. It calculates the maximum fair price a value investor should pay for a defensive stock.
What is Benjamin Graham value investing?
Benjamin Graham, Warren Buffett's mentor, pioneered value investing in "The Intelligent Investor" (1949). He believed stocks should be bought with a margin of safety—significantly below intrinsic value. The Graham Number embodies his conservative P/E ≤ 15 and P/B ≤ 1.5 constraints.
What is margin of safety in stock investing?
Margin of safety is the percentage difference between a stock's Graham Number (fair value) and its current price. Positive margin means the stock trades below fair value. Graham advocated buying with at least 20-50% margin of safety to protect against estimation errors.
Graham Number vs intrinsic value: what's the difference?
The Graham Number is a simplified intrinsic value formula using only EPS and BVPS. Full intrinsic value models (e.g., DCF) incorporate growth rates, cash flows, and discount rates. The Graham Number works best for stable, asset-heavy value stocks.
How do I use the Graham Number for stock screening?
Screen for stocks where current price is below the Graham Number. Combine with quality filters: positive earnings, low debt, consistent dividends. Avoid growth stocks—Apple's Graham Number is $23.48 vs $190 price, showing the formula undervalues growth.
What are Graham Number limitations?
The Graham Number ignores growth, intangibles, and competitive moats. It fails for tech companies (low BVPS), negative earnings, or high-growth firms. Use it for value stocks with tangible assets and stable earnings only.
⚖️ Graham Number vs Other Valuation Methods
| Method | Inputs | Best For | Limitation |
|---|---|---|---|
| Graham Number | EPS, BVPS | Value stocks, banks, industrials | Ignores growth, intangibles |
| DCF | Cash flows, discount rate | All companies with positive FCF | Sensitive to assumptions |
| P/E Ratio | Price, EPS | Quick comparison | No book value, varies by sector |
| P/B Ratio | Price, BVPS | Asset-heavy companies | Ignores earnings quality |
⚠️ Common Misconceptions
It's an Automatic Buy Signal
A stock below its Graham Number is a screening result, not a buy signal. Conduct additional analysis on competitive position, debt, and cash flow.
It Works for All Companies
The Graham Number was designed for industrial companies with tangible assets. Tech, software, and growth companies often have low BVPS—the formula undervalues them.
It Accounts for Growth
Unlike Graham's later formulas, the Graham Number does not factor in growth rates. It's a static measure—use DCF or other models for growth stocks.
⚠️ Disclaimer: The Graham Number is a screening tool, not investment advice. It does not account for growth, intangibles, or company-specific risks. Always conduct additional due diligence. Not financial advice.
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