About Graham Number Calculator (Formula)
A Graham Number Calculator is a tool used in finance and investing to estimate the intrinsic value of a stock, primarily following the principles of value investing advocated by Benjamin Graham, a renowned economist and investor. The Graham Number is used to assess whether a stock is undervalued or overvalued in relation to its current market price.
The formula for calculating the Graham Number is as follows:
Graham Number = √(22.5 × Earnings per Share (EPS) × Book Value per Share)
Where:
- Graham Number represents the estimated intrinsic value of the stock.
- EPS is the company’s trailing twelve months (TTM) earnings per share.
- Book Value per Share is the company’s book value (total assets minus total liabilities) per share.
Benjamin Graham, often considered the father of value investing, suggested that investors look for stocks with a market price significantly below their Graham Number. This approach is part of a value investing strategy aimed at identifying stocks that may be trading at a discount to their intrinsic value.
Graham Number Calculators are valuable tools for investors seeking undervalued stocks and making informed investment decisions based on fundamental analysis. They help investors assess whether a stock’s current market price provides a margin of safety relative to its intrinsic value, as determined by the Graham Number.