Free Graham Number Calculator
Conditions: PE ≤ 15 and PB ≤ 1.5, or PE × PB ≤ 22.5
Enter BVPS and EPS to calculate the Graham number
What Is the Graham Number?
The Graham number is a valuation metric introduced by Benjamin Graham in his classic book “The Intelligent Investor.” It combines a company’s current earnings per share (EPS) with its book value per share (BVPS) into a single target price. When a stock trades below this number, it is generally considered undervalued; when it trades above, the stock may be overvalued. Because the Graham number estimates a stock’s intrinsic value, the tool that computes it is often called an intrinsic value calculator, a Benjamin Graham calculator, or a stock fair value calculator.
A key feature of the Graham number is that it tends to rise as a company’s earnings grow. Higher net income directly increases EPS, and retained earnings subsequently boost book value per share. As a result, profitable firms often show an upward‑trending Graham number, reflecting the accumulating value for shareholders.
The Graham Number Formula and Prerequisites
The underlying formula is straightforward:
Here EPS is the trailing twelve months net income per share, and BVPS is the common equity per share. The multiplier 22.5 comes from the product of the maximum acceptable P/E ratio (15) and the maximum acceptable P/B ratio (1.5). Before applying the formula, the stock must satisfy one of these two conditions:
- Its price‑to‑earnings (P/E) ratio is at most 15 and its price‑to‑book (P/B) ratio is at most 1.5; or
- The product of the P/E and P/B ratios is 22.5 or lower.
Only when these threshold requirements are met does the Graham number provide a reliable fair‑value benchmark.
How to Use the Graham Number Calculator
This Graham number calculator (also referred to as a Graham formula calculator, an undervalued stock calculator, or a stock fair value calculator) can be used in two ways. If you already have the EPS and BVPS, simply enter those figures and the tool immediately returns the Graham number. If you lack the per‑share numbers, you can switch to the per‑share calculation mode and provide three basic financial data points:
- Common shares outstanding – available on the income statement.
- Common shareholders’ equity – found on the balance sheet.
- TTM net income attributable to common stockholders – also on the income statement.
The calculator then derives EPS (net income divided by shares) and BVPS (equity divided by shares) and applies the Graham formula. This makes the tool a one‑stop solution for rapid fair‑value assessment.
Real‑World Example: TD Synnex
To see the formula in practice, consider TD Synnex (now TD SYNNEX) prior to its second‑quarter earnings release in 2020. At that time, the stock displayed a P/E of 9.2 and a P/B of 1.3, both comfortably within Graham’s limits. The trailing twelve months figures were:
- EPS = $10.47
- BVPS = $75.82
Applying the formula yields a Graham number of approximately 101.80, implying a potential upside of about 31 %. The company later spun off its subsidiary Concentrix, distributing shares to existing stockholders. By December 14, 2021, an initial investment made at $101.80 had grown by 172 %.
Limitations and Alternative Valuation Methods
The Graham number has clear drawbacks. It ignores free cash flow, EBITDA margins, competitive positioning, and other qualitative factors. It also requires a company to have positive net income and positive book value; loss‑making firms or those with negative equity cannot be evaluated with this metric. When the stock price is far above the Graham number, or when the prerequisite conditions are not met, investors can consider these alternative approaches:
- EBITDA multiple – suitable when a company has positive EBITDA, especially if depreciation and amortization significantly affect net income.
- Enterprise‑value‑to‑sales (EV/Sales) multiple – useful for firms that have not yet achieved positive operating income or cash flow.
If the valuation still seems unfavorable, a dollar‑cost averaging strategy—purchasing fixed dollar amounts at regular intervals—can help reduce the impact of buying at a single market peak.
FAQ
1. How do you calculate the Graham number?
The Graham number is calculated by taking the square root of 22.5 times the earnings per share (EPS) times the book value per share (BVPS). In formula terms, GN = sqrt(22.5 × EPS × BVPS).
2. What conditions must a stock meet for the Graham number to be applicable?
The stock should have a P/E ratio of 15 or less and a P/B ratio of 1.5 or less. Alternatively, the product of the P/E and P/B ratios must be 22.5 or lower. The company also needs to have positive net income.
3. Can the Graham number be used for companies with negative earnings?
No, it is only valid for profitable companies. If the company has negative net income or negative book value, the Graham number may not be meaningful, and other valuation methods such as EBITDA multiple or EV/Sales multiple should be considered.
4. What does it indicate if a stock trades below its Graham number?
It may indicate that the stock is undervalued relative to its earnings and book value, suggesting a possible investment opportunity. However, the Graham number is only one factor and should be combined with other analyses.
5. What are the main limitations of the Graham number?
The Graham number ignores cash flow, EBITDA margins, competitive advantages, and other qualitative factors. It also requires positive net income and is most suitable for stable, mature companies. It should not be used as the sole valuation metric.
How to Use
- Enter the book value per share (BVPS) and earnings per share (EPS) for the stock you want to evaluate.
- Optionally enter the current stock price to compare it against the calculated Graham number.
- Review the Graham number and check whether the stock is undervalued or overvalued based on Benjamin Graham's formula.