What Is the Graham Number?
The Graham number is an investing metric developed by Benjamin Graham — the father of value investing — that combines a company's earnings per share (EPS) and book value per share (BVPS) to estimate the maximum fair price an investor should pay for a stock.
Graham suggested that if a stock trades below its Graham number, it is undervalued. If it trades above its Graham number, it is overvalued. The Graham number is one way to calculate the intrinsic value of a stock, similar to discounted cash flow (DCF) analysis.
How to Calculate the Graham Number
The Graham number formula is:
Where:
- GN — Graham Number (fair price per share)
- EPS — Earnings Per Share (trailing twelve months)
- BVPS — Book Value Per Share
- 22.5 — derived from Graham's requirement that P/E ≤ 15 and P/B ≤ 1.5 (15 × 1.5 = 22.5)
Graham's two key requirements for using this formula:
- P/E ratio ≤ 15 AND P/B ratio ≤ 1.5, OR
- P/E ratio × P/B ratio ≤ 22.5
How to Use Our Graham Number Calculator
Our calculator simplifies the valuation process in a few steps:
- Enter EPS and BVPS directly, or use the Calculate Per Share Values section to compute them from total figures (shares outstanding, shareholders equity, TTM net income).
- Enter the current stock price (optional) to see whether the stock is undervalued or overvalued, and to check P/E and P/B ratios.
- Select your currency — over 30 world currencies are supported. USD is the default; Russian Ruble (RUB) is also prominently available.
- Choose the number format — American (1,234.56) or Metric (1 234,56).
Graham Number — Real-Life Example
Consider TD Synnex Corporation before its Q2 2020 earnings report. The stock was trading at the following ratios:
- P/E ratio: 9.2 (below 15 ✓)
- P/B ratio: 1.3 (below 1.5 ✓)
Trailing twelve months (TTM) figures at the time:
- EPS: $10.47
- BVPS: $75.82
Graham Number = √(22.5 × 10.47 × 75.82) = √(17,872.70) ≈ $133.69
Since both P/E and P/B requirements are satisfied, the Graham number is a valid valuation tool here. Any price below $133.69 would indicate the stock is undervalued by Graham's criteria.
Shortcomings of the Graham Number
While useful, the Graham number has several limitations:
- Not suitable for negative EPS or BVPS — the formula breaks down if either value is zero or negative.
- Ignores growth — companies with high growth rates may justify P/E ratios well above 15, making the Graham number overly conservative.
- Sector-specific limitations — the formula was designed for manufacturing-era companies. It may not work well for software, biotech, or other asset-light businesses where BVPS is low.
- Snapshot in time — it uses trailing figures and does not account for future earnings potential.
Despite these limitations, the Graham number remains a popular tool for value investors as a quick first screen for undervalued stocks.
What Is a Good Graham Number?
There is no fixed "good" Graham number — it is only meaningful when compared to the current stock price:
- If current price < Graham number: stock is potentially undervalued — consider buying.
- If current price > Graham number: stock is potentially overvalued — exercise caution.
- If current price ≈ Graham number: stock is fairly valued.
The margin of safety — the percentage by which the current price is below the Graham number — is a key concept in value investing. Graham himself recommended seeking a margin of safety of at least 30–50%.
Frequently Asked Questions
What is the 22.5 constant in the Graham formula?
The constant 22.5 comes from Graham's rule that investors should pay no more than 15× earnings (P/E ≤ 15) and no more than 1.5× book value (P/B ≤ 1.5). Multiplying these limits gives 15 × 1.5 = 22.5.
Can I use the Graham number for any stock?
The formula works best for traditional businesses with positive, stable earnings and meaningful book value. It is less applicable to technology companies, startups, financial institutions, or businesses with negative book value.
Where do I find EPS and BVPS?
Both figures are reported in a company's financial statements. EPS (trailing twelve months) is found in the income statement; BVPS is derived from the balance sheet by dividing shareholders' equity by shares outstanding. Financial data sites like Yahoo Finance, Macrotrends, or the company's investor relations page are good sources.
Is the Graham number the same as intrinsic value?
The Graham number is one estimate of intrinsic value based solely on EPS and BVPS. Other methods — such as discounted cash flow (DCF) analysis — produce different intrinsic value estimates. Most analysts use multiple valuation methods together.