Graham Number Calculator
Calculate Benjamin Graham's intrinsic value estimate using EPS and book value per share.
See if a stock is trading below its fair value.
The Graham Number
The Graham Number is a figure that measures a stock’s fundamental value, named after the legendary investor Benjamin Graham. It represents the maximum price a defensive investor should pay for a stock.
Formula:
Graham Number = √(22.5 × EPS × BVPS)
| Variable | Meaning |
|---|---|
| EPS | Earnings Per Share (trailing 12 months) |
| BVPS | Book Value Per Share |
| 22.5 | Derived from Graham’s rules: max P/E of 15 × max P/B of 1.5 |
How to interpret the result:
| Situation | Meaning |
|---|---|
| Stock price < Graham Number | Potentially undervalued — margin of safety exists |
| Stock price ≈ Graham Number | Fairly valued |
| Stock price > Graham Number | Potentially overvalued by value investing standards |
Graham’s two criteria (the 22.5 constant):
- A stock’s P/E ratio should be no more than 15
- A stock’s Price-to-Book (P/B) ratio should be no more than 1.5
- 15 × 1.5 = 22.5 — that’s where the constant comes from
When does the formula not apply?
- When EPS is negative (no real solution exists)
- For growth stocks priced on future potential rather than current earnings
- For financial companies where book value is calculated differently
- When comparing stocks across very different industries
Classic example — hypothetical stock:
- EPS = $4.00, BVPS = $25.00
- Graham Number = √(22.5 × 4.00 × 25.00) = √2,250 ≈ $47.43
- If the stock trades at $35, it appears undervalued relative to Graham’s standard
Limitations: Graham developed this formula in the 1970s. Many modern businesses (software, services) have low book values but high earnings power. The Graham Number works best for traditional asset-heavy businesses like manufacturers, utilities, and banks.
Value investors use it as a quick screen, not an absolute verdict. Always combine it with qualitative analysis of the business.