What is the Graham Number?
Graham Number Calculator: The Graham Number is a stock valuation formula developed by Benjamin Graham, the father of value investing. It helps investors determine the maximum price to pay for a stock based on its earnings per share (EPS) and book value per share (BVPS). This formula provides a simple yet effective way to identify undervalued stocks.
Formula for Graham Number
The formula for calculating the Graham Number is:
Graham Number = √(22.5 × EPS × BVPS)
Where:
- EPS: Earnings Per Share
- BVPS: Book Value Per Share
Use the Graham Number Calculator
Why Use the Graham Number?
The Graham Number is a reliable metric for conservative investors looking for a quick way to assess whether a stock is overvalued or undervalued. It provides a margin of safety and encourages disciplined investment decisions.
Benefits of the Graham Number
- Easy to calculate
- Helps identify undervalued stocks
- Provides a margin of safety
- Based on fundamental financial metrics
Limitations of the Graham Number
While the Graham Number is a helpful tool, it is not perfect. It does not consider factors like future growth potential, market conditions, or qualitative aspects of a business. Therefore, it should be used in conjunction with other valuation methods.