Calculate maximum fair price for stocks based on Benjamin Graham's method
Current stock price (check Yahoo Finance, Google Finance, or your broker)
Earnings Per Share = Company's total profit divided by shares. Check Yahoo Finance → Statistics → 'Diluted EPS (ttm)'
Book Value Per Share = Total assets minus liabilities, divided by shares. Yahoo Finance → Statistics → 'Book Value Per Share'
What Is the Graham Number?
The Graham Number is a fundamental valuation metric created by Benjamin Graham, widely considered the father of value investing and Warren Buffett's mentor. It calculates the maximum fair price an investor should pay for a stock based on its earnings per share (EPS) and book value per share (BVPS). The formula provides a conservative estimate of intrinsic value, making it a valuable screening tool for identifying potentially undervalued stocks. Graham's investment philosophy emphasized buying stocks with a significant margin of safety — paying substantially less than intrinsic value to protect against downside risk. The Graham Number embodies this principle by setting a ceiling price that incorporates both earnings power and asset backing.
The Graham Number = √(22.5 × EPS × BVPS). The constant 22.5 comes from Graham's criteria that a stock should have a price-to-earnings (P/E) ratio no higher than 15 and a price-to-book (P/B) ratio no higher than 1.5. Multiplied together: 15 × 1.5 = 22.5. Both EPS and BVPS must be positive for the formula to work. The result represents the maximum price at which a value investor should consider buying the stock. If the current stock price is below the Graham Number, it may be undervalued. The greater the discount to the Graham Number, the larger the margin of safety.
Enter the current earnings per share (EPS) and book value per share (BVPS) for the stock you want to analyze. You can find these figures on financial sites like Yahoo Finance, Google Finance, or Finviz. The calculator will compute the Graham Number and compare it to the current stock price if provided. A stock trading below its Graham Number may represent a value opportunity, while one trading above it may be overvalued by Graham's standards. Note that this works best for mature, profitable companies with tangible assets.
Consider a stock with EPS of $5.00 and BVPS of $40.00. The Graham Number = √(22.5 × 5 × 40) = √4,500 = $67.08. If this stock is currently trading at $55, it is 18% below its Graham Number, suggesting a meaningful margin of safety. If it is trading at $85, it is 27% above the Graham Number, indicating it may be overvalued by Graham's criteria. Value investors like Warren Buffett would focus on the first scenario, buying quality companies at a discount to their intrinsic value.
The Graham Number works best for stable, asset-heavy companies in sectors like banking, insurance, manufacturing, and utilities. It is less suitable for high-growth technology companies where earnings and book values may not reflect true value. Always combine the Graham Number with other analysis: examine debt levels, revenue trends, competitive moats, and management quality. Use the Graham Number as a screening tool to narrow your research list, not as the sole buy/sell signal. Check that EPS and book value are from the most recent financial reports.