Graham Number Calculator -

The Graham Number is a formula developed by Benjamin Graham, the father of value investing, to estimate the fair value of a stock. This valuation method gives investors a quick way to determine whether a stock might be undervalued based on its Earnings Per Share (EPS) and Book Value Per Share (BVPS).

🧮 Graham Number Formula

The formula is:

javaCopyEditGraham Number = √(22.5 × EPS × BVPS)

Where:

EPS = Earnings Per Share
BVPS = Book Value Per Share
22.5 is a constant derived from Benjamin Graham’s principles (15 as the maximum P/E ratio × 1.5 as the maximum P/B ratio)

📌 Why Is It Important?

The Graham Number is especially helpful for conservative, long-term investors who focus on fundamental analysis. It provides a quick “check” for stock valuation and helps:

Identify undervalued stocks
Avoid overpriced securities
Maintain a margin of safety

🛠️ How to Use the Calculator

Enter EPS – You can find this in the company’s financial reports or stock profile.
Enter BVPS – Also available in the balance sheet or on finance websites.
Click “Calculate” – The result is the maximum price you might consider paying for that stock.

🔍 Example

Let’s say a company has:

EPS = $4.00
BVPS = $25.00

Using the formula:

javascriptCopyEditGraham Number = √(22.5 × 4 × 25) = √(2250) ≈ $47.43

So, the fair value according to Graham’s model would be $47.43. If the stock is trading below this number, it may be considered undervalued.

💡 When to Use the Graham Number

Value investing: Perfect for comparing intrinsic value to market price.
Fundamental analysis: Used with other ratios for deeper insights.
Preliminary screening: Great for filtering out overvalued stocks early.

❓ FAQs

1. What is the Graham Number used for?
It’s used to estimate the fair value of a stock based on conservative financial metrics.

2. Who was Benjamin Graham?
He was a legendary value investor and the mentor of Warren Buffett.

3. What is considered a “good” Graham Number?
One that is higher than the stock’s current price, indicating potential undervaluation.

4. Can I use this for all companies?
It works best for stable, dividend-paying companies—not ideal for growth or tech stocks with negative earnings.

5. Where can I find EPS and BVPS?
They’re typically listed on financial websites, earnings reports, and stock screeners.

6. Does a higher Graham Number mean a better stock?
Not necessarily. It just provides a benchmark. You should compare it with the market price.

7. Is the 22.5 constant always the same?
Yes, it reflects Graham’s ideal maximum P/E and P/B ratios.

8. Can this be used for penny stocks?
Yes, but ensure the financial data is accurate and up to date.

9. Is this calculator good for day trading?
No, it’s more suited for long-term value investing.

10. What other tools go well with the Graham Number?
P/E ratio, PEG ratio, ROE, and Debt-to-Equity are great complements.

11. Is BVPS different from stock price?
Yes. BVPS is a measure of a company’s net asset value per share.

12. How accurate is the Graham Number?
It’s a rough estimate, not a definitive valuation. Use it as a guide.

13. Can I automate this for multiple stocks?
Yes, using spreadsheet formulas or financial APIs.

14. Is the Graham Number better than DCF?
It’s simpler and faster, but less detailed than Discounted Cash Flow models.

15. Should I buy a stock just because it’s below the Graham Number?
Not always. Consider other factors like market trends and future growth.

16. Does inflation affect the Graham Number?
Not directly, but inflation impacts earnings and book value over time.

17. Can I use adjusted EPS?
Yes, especially if the company had one-time charges.

18. What if the EPS is negative?
The Graham Number becomes invalid or imaginary—avoid such stocks for this method.

19. What’s a good P/B ratio for this?
A ratio below 1.5 aligns with Graham’s value investing criteria.

20. Can I trust this for international stocks?
Yes, but be cautious with exchange rates and accounting standards.

🧾 Conclusion

The Graham Number Calculator is a fast and simple tool to estimate a stock’s intrinsic value using two essential metrics: EPS and BVPS. Whether you’re a beginner investor or a seasoned analyst, this method aligns with the core principles of value investing: conservative, disciplined, and focused on fundamentals.The Graham Number is a formula developed by Benjamin Graham, the father of value investing, to estimate the fair value of a stock. This valuation method gives investors a quick way to determine whether a stock might be undervalued based on its Earnings Per Share (EPS) and Book Value Per Share (BVPS).