What is the Graham Number?

The Graham Number is a figure that measures a stock's fundamental value by taking into account the company's earnings per share (EPS) and book value per share (BVPS). It was developed by Benjamin Graham, the father of value investing.

What is the Graham Number formula?

The Graham Number formula is: √(22.5 × EPS × BVPS). The constant 22.5 comes from Graham's criteria that a stock's P/E ratio should not exceed 15 and its P/B ratio should not exceed 1.5 (15 × 1.5 = 22.5).

How do I use the Graham Number?

Compare the Graham Number to the current stock price. If the stock price is below the Graham Number, the stock may be undervalued according to Graham's value investing principles. If it's above, the stock may be overvalued.

Who is Benjamin Graham?

Benjamin Graham (1894-1976) was a British-born American economist and investor, widely known as the "father of value investing." He authored "The Intelligent Investor" and "Security Analysis," and was Warren Buffett's mentor at Columbia Business School.

What are the limitations of the Graham Number?

The Graham Number has limitations: it doesn't account for growth prospects, works best for stable companies with positive earnings, and may not be suitable for high-growth or asset-light businesses. It should be used alongside other valuation methods.

Where does the 22.5 constant come from?

The 22.5 constant comes from Benjamin Graham's two criteria: a P/E ratio no higher than 15 and a P/B ratio no higher than 1.5. Multiplying these together (15 × 1.5) gives 22.5, which is used in the Graham Number formula.

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Graham Number Calculator

Calculate the Graham Number for a stock based on its earnings and book value.

Formular: √(22.5 × EPS × BVPS)

The constant 22.5 comes from Graham's criteria: P/E ≤ 15 and P/B ≤ 1.5

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