Graham Number = √(22.5 × EPS × BVPS) — a measure of a stock’s theoretical fair value à la Benjamin Graham, the father of value investing.
The label above is descriptive (below/above Graham Number), not a buy or sell recommendation.
The Graham Number is a measure of a stock’s theoretical fair value introduced by Benjamin Graham, the father of value investing, in the book The Intelligent Investor. It is computed from earnings per share (EPS) and book value per share (BVPS), then compared with the market price to see how far the price deviates from Graham’s fair value.
The formula is Graham Number = √(22.5 × EPS × BVPS). The 22.5 comes from multiplying Graham’s two valuation limits: a maximum price-to-earnings (P/E) ratio of 15 times a maximum price-to-book-value (P/BV) ratio of 1.5. Example: EPS = 2 and BVPS = 20 gives √(22.5 × 2 × 20) = √900 = 30.
The Graham Number suits defensive companies’ stocks: stable earnings over many years, a healthy balance sheet, and dividend payments. Graham designed it as a conservative screen in the style of the defensive investor, not as a tool for evaluating fast-growing companies.
This formula is not suited to growth stocks whose earnings are not yet stable, companies currently losing money, or companies with distorted book values (for example due to large buybacks). It also ignores management quality, industry prospects, and cash flow — so it should only be used as one perspective among several, not as the sole basis for valuation.
The Graham Number computes fair value from EPS and book value per share (BVPS), while the Dividend Discount Model computes fair value from discounted future dividends (the Gordon model uses dividends, growth rate, and discount rate). Both are stock valuation tools, but they use different inputs and assumptions.
If EPS is negative or zero (or BVPS is negative/zero), the Graham Number is invalid because the square root of a negative number is not defined in real numbers, and a zero result is not meaningful as a fair value. This calculator shows an invalid status for such inputs.
No. The Graham Number is a valuation education tool for practice calculations, not a buy or sell recommendation. Investment decisions still need to consider many other factors and, if needed, consultation with a licensed financial advisor.
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