Graham Number Calculator
Calculate the maximum fair value price using Graham's formula
Graham Formulas
Understanding the Graham Number
The Graham Number, named after Benjamin Graham (the father of value investing and Warren Buffett's mentor), calculates the maximum price a defensive investor should pay for a stock. It combines earnings and book value into a single fair value estimate.
The formula is: √(22.5 × EPS × BVPS). The 22.5 comes from Graham's criteria: maximum P/E of 15 and maximum P/B of 1.5 (15 × 1.5 = 22.5). A stock trading below its Graham Number may be undervalued.
Graham developed this for his 'defensive investor'—someone seeking adequate returns with minimal risk. It's conservative by design, filtering for companies with reasonable valuations relative to both earnings and assets.
Graham's Investment Criteria
P/E ≤ 15
Stock shouldn't be too expensive relative to earnings.
P/B ≤ 1.5
Stock shouldn't be too expensive relative to book value.
P/E × P/B ≤ 22.5
Combined metric captured in the Graham Number formula.
Margin of Safety
Buy significantly below calculated value to protect against error.
Graham Number Examples
| Stock | EPS | BVPS | Graham # | If Price |
|---|---|---|---|---|
| Example A | $5 | $40 | $67.08 | |
| Example B | $3 | $25 | $41.08 | |
| Example C | $8 | $60 | $103.92 | |
| Example D | $2 | $15 | $25.98 | |
| Bank Stock | $4 | $35 | $56.12 |
Using the Graham Number
Seek Margin of Safety
Don't just buy at Graham Number. Aim for 20-30% below for true margin of safety.
Requires Positive EPS
Graham Number only works with positive earnings. Can't calculate for loss-making companies.
Best for Certain Sectors
Works well for financials, utilities, industrials. Less useful for growth/tech stocks.
One Tool Among Many
Graham Number is a screening tool. Always do deeper analysis before investing.
Frequently Asked Questions
Who was Benjamin Graham?
Benjamin Graham (1894-1976) was an economist and investor who established value investing as a discipline. His books 'Security Analysis' and 'The Intelligent Investor' are foundational texts. Warren Buffett was his student and protégé.
Why doesn't Graham Number work for tech stocks?
Tech companies often have high P/E (growth expectations) and high P/B (intangible assets). They'd almost never pass Graham's criteria. The formula suits mature, asset-heavy companies better.
What's a good margin of safety?
Graham recommended at least 33% margin of safety. Buffett suggests buying at a significant discount to intrinsic value. 20-50% below Graham Number provides protection against errors.
Should I use TTM or forward EPS?
Use trailing twelve months (TTM) EPS for safety. Forward estimates are uncertain. Graham was conservative—he'd want proven earnings, not projections.
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