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Graham Number Formula:
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The Graham Number is a metric developed by Benjamin Graham (the "father of value investing") to estimate the maximum fair value price for a stock. It's based on a company's earnings and book value per share.
The calculator uses the Graham Number formula:
Where:
Explanation: The constant 22.5 represents Graham's maximum price-to-earnings (15) multiplied by price-to-book (1.5) ratios that he considered reasonable for defensive investors.
Details: The Graham Number helps identify potentially undervalued stocks by comparing the calculated fair value to the current market price. Stocks trading significantly below their Graham Number may represent good value investments.
Tips: Enter EPS and BVPS in USD. Both values must be positive numbers. The calculator will compute the maximum fair value price according to Graham's formula.
Q1: Who was Benjamin Graham?
A: Benjamin Graham was an influential investor and economist known as the "father of value investing." He was Warren Buffett's mentor and wrote the classic investment book "The Intelligent Investor."
Q2: How should I use the Graham Number?
A: Compare the Graham Number to the stock's current price. If the current price is significantly below the Graham Number, the stock may be undervalued.
Q3: What are limitations of the Graham Number?
A: It doesn't account for growth prospects, competitive advantages, or other qualitative factors. It works best for stable, established companies.
Q4: What is considered a good margin of safety?
A: Graham typically recommended buying at no more than two-thirds of the Graham Number to allow for a margin of safety.
Q5: Does this work for all types of companies?
A: It works best for stable, asset-heavy companies. It may be less relevant for high-growth tech companies or service businesses with few tangible assets.