Graham Number Calculator
Benjamin Graham's valuation metric.
Max price a defensive investor should pay.
How the Math Works
The Graham Number is a conservative valuation metric developed by Benjamin Graham to estimate the maximum price a stock should trade for based on its earnings and book value. The formula combines these two factors: it multiplies the earnings per share (EPS) by the book value per share, then multiplies the result by 22.5 (derived from Graham's suggested maximums of 15 for the price-to-earnings ratio and 1.5 for the price-to-book ratio). Taking the square root of this product yields the Graham Number, which serves as a threshold for undervaluation.
Practical Applications
Investors use the Graham Number by first calculating it for a company using its EPS and book value per share. If the current stock price is below this number, the stock may be undervalued and a potential buy. However, since this metric assumes a static market and ignores growth potential, it works best for mature, stable companies with consistent earnings and assets. Always pair it with other analyses to avoid oversimplification.
Day-to-Day Use
For everyday investors, the Graham Number offers a quick, disciplined approach to evaluating stock purchases without requiring complex models. By comparing a stock's price to this benchmark, you can avoid overpaying and focus on fundamentally sound companies. It’s a practical tool for value-conscious investors who prioritize safety and long-term value over speculative gains.
FAQ
Still relevant?
A classic value-investing screen, not a precise target.