Graham Number Calculator
About the Graham Number
The Graham Number is a valuation metric developed by Benjamin Graham, the father of value investing. It estimates the fair value of a stock based on its earnings per share (EPS) and book value per share (BVPS).
Formula: Graham Number = √(22.5 × EPS × BVPS)
A stock trading significantly below its Graham Number might be undervalued, while one trading above might be overvalued.
Graham Number Calculator: A Complete Guide to Value Investing (2024 Update)
Investing in stocks can be tricky. How do you know if a stock is undervalued or overpriced? One useful tool is the Graham Number Calculator.
This formula helps investors find fair stock prices based on earnings and book value. It was created by Benjamin Graham, the father of value investing. His student, Warren Buffett, used these principles to build his fortune.
In this guide, you’ll learn:
- What the Graham Number is
- How to calculate it manually
- Best online Graham Number calculators
- How to use it for smart investing
- Limitations of the formula
What Is the Graham Number?
The Graham Number is a simple formula to estimate a stock’s fair value. It helps avoid overpaying for stocks.
Benjamin Graham introduced it in his book "The Intelligent Investor." The formula uses:
- Earnings Per Share (EPS) – Company’s profit per share.
- Book Value Per Share (BVPS) – Net asset value per share.
The Graham Number sets a maximum price a value investor should pay for a stock.
Graham Number Formula
The original formula is:
Graham Number = √(22.5 × EPS × BVPS)
Where:
- 22.5 = Graham’s multiplier (based on a P/E ≤ 15 and P/B ≤ 1.5).
- EPS = Earnings per share (last 12 months).
- BVPS = Book value per share.
Example Calculation
Let’s say a company has:
- EPS = $5
- BVPS = $30
Graham Number = √(22.5 × 5 × 30) = √(3,375) ≈ $58.09
This means the stock should ideally trade below $58.09 to be a good value buy.
How to Use a Graham Number Calculator
Calculating manually is easy, but online calculators save time. Here’s how to use one:
- Find EPS & BVPS (from Yahoo Finance, Morningstar, or company reports).
- Enter the values into the calculator.
- Compare the Graham Number to the current stock price.
Why Use the Graham Number?
1. Avoid Overpaying for Stocks
Many investors buy hype, not value. The Graham Number helps set a rational price limit.
2. Simple & Effective
No complex ratios—just EPS and BVPS.
3. Works for Long-Term Investors
Graham’s method focuses on stable, profitable companies, not speculative trades.
Limitations of the Graham Number
1. Not for Growth Stocks
Tech companies (like Tesla or Amazon) often have high P/E ratios, making Graham’s formula too restrictive.
2. Ignores Future Growth
It relies on past earnings, not future potential.
3. Works Best for Mature Companies
Stable businesses (banks, utilities) fit better than startups.
How Warren Buffett Uses Graham’s Principles
Buffett modified Graham’s strategy by:
- Focusing on durable competitive advantages.
- Buying wonderful businesses at fair prices (not just cheap stocks).
But the Graham Number remains a great starting point for beginners.
Final Thoughts
The Graham Number Calculator is a powerful tool for value investors. It helps find undervalued stocks and avoid bubbles.
However, always combine it with other analysis like:
- Dividend history
- Industry trends
- Management quality
Want to try it? Use a free calculator and start investing smarter today!
FAQs
Q: Is the Graham Number still relevant in 2024?
A: Yes, for value stocks—but not high-growth companies.
Q: What’s a good Graham Number?
A: A stock trading below its Graham Number may be undervalued.
Q: Can I use it for crypto or ETFs?
A: No, it’s only for individual stocks with EPS and BVPS.