Graham Number Calculator

Calculate the Graham Number to estimate a stock's value based on earnings and book value.

What Is the Graham Number?

The Graham Number is a formula developed by Benjamin Graham, the father of value investing. It estimates the maximum fair value of a stock based on its earnings per share (EPS) and book value per share (BVPS). The logic is straightforward: a stock trading below this number is potentially undervalued, while one trading above it may be overvalued.

Graham designed this metric as a defensive screening tool. It assumes that a stock's price should not exceed 15 times its earnings or 1.5 times its book value. The Graham Number combines both constraints into a single figure.

How the Graham Number Is Calculated

The formula is:

Graham Number = √(22.5 × EPS × BVPS)

The constant 22.5 comes from Graham's rule of thumb: a price-to-earnings (P/E) ratio of 15 multiplied by a price-to-book (P/B) ratio of 1.5. The square root ensures the result stays within a reasonable range.

For example, if a company has an EPS of $4.00 and a BVPS of $30.00:

Graham Number = √(22.5 × 4.00 × 30.00) = √(2,700) ≈ $51.96

If the current stock price is below $51.96, it may be undervalued by this metric.

How to Use This Calculator

Enter Earnings Per Share (EPS) – Use the most recent trailing twelve months (TTM) EPS from the company's financial statements.
Enter Book Value Per Share (BVPS) – This is total shareholder equity divided by shares outstanding.
Click Calculate – The tool instantly computes the Graham Number.

Compare the result to the current stock price. If the price is significantly lower, the stock passes Graham's value screen.

Understanding the Results

The Graham Number is a ceiling, not a target price. It represents the maximum price a defensive value investor should pay. A stock trading at a 30% discount to its Graham Number is generally considered a strong value candidate.

However, the number is only as reliable as the inputs. EPS and BVPS can be distorted by one-time charges, share buybacks, or accounting changes. Always verify the quality of earnings and book value before making an investment decision.

Limitations of the Graham Number

Ignores growth – The formula does not account for future earnings growth, which is critical for many modern companies.
Not suitable for all sectors – Banks and insurance companies often trade below book value, while tech firms may have minimal book value but strong earnings.
Static snapshot – The calculation uses historical data and does not reflect forward-looking estimates.
Arbitrary multiplier – The 22.5 constant was reasonable in Graham's era but may not apply to today's market conditions.

Use the Graham Number as a preliminary screen, not a standalone buy signal. Combine it with other valuation metrics like the P/E ratio, discounted cash flow (DCF) analysis, and qualitative research.

Practical Use Cases

Value stock screening – Quickly filter a watchlist for stocks trading below their intrinsic value.
Portfolio review – Check existing holdings against the Graham Number to identify potential overvaluation.
Educational analysis – Learn how earnings and book value interact to determine a stock's fair price.
Comparison tool – Compare multiple companies in the same industry to find the most undervalued candidate.

Frequently Asked Questions

What is a good Graham Number ratio?

A ratio of current price to Graham Number below 0.85 is often considered attractive. A ratio of 1.0 means the stock is trading exactly at its Graham Number. Above 1.0 suggests potential overvaluation.

Can the Graham Number be negative?

Yes. If either EPS or BVPS is negative, the product inside the square root becomes negative, and the Graham Number cannot be calculated. This typically indicates a distressed company with losses or negative equity.

Does the Graham Number work for growth stocks?

Rarely. Growth stocks often have high P/E ratios and low book values, making the Graham Number very low or incalculable. The formula is better suited for mature, asset-heavy companies.

How often should I recalculate the Graham Number?

Recalculate after each quarterly earnings report or whenever EPS or BVPS changes significantly. The number is only as current as the financial data used.