Graham Number Calculator

Our smart Graham number calculator helps you calculate a stock's fair value by using the most recent earnings per share and book value per share. In this article, we will cover:

• What the Graham number is in investing.
• How to calculate the Graham number.
• How to use our Graham number calculator.
• What is a good Graham number?

As a bonus, we will explore a real-life successful investing example.

Graham number is an investing metric that puts together the current earnings per share (EPS) and the book value per share to obtain a stock price value.

Benjamin Graham suggested that if investors trade a stock at a price under its Graham number, then the stock is undervalued. Contrarily, if the stock trades over its Graham number, it is overvalued.

The Graham number is the intrinsic value of a stock. Other investors get it through the discounted cash flow calculator.

It is essential to notice that the fair value of a stock will rise if the EPS grows. If the EPS grows, the more the retained earnings will be for a company; thus, shareholders' equity will increase too. But hey, everything starts with the revenue growth. Do not forget!

In the chart below, you can see how the intrinsic value (which you can obtain without the Graham number calculator) is between a range of several stock prices, making the stock overvalued or undervalued.

As we now have a rough idea of what the Graham number is, let's discuss how it is computed in more detail. Graham number formula is relatively easy:

where:

• $\text{GN}$ – Graham number;
• $\text{EPS}$ – Earnings per share; and
• $\text{BVPS}$ – Book value per share.

It is important to verify the main two requirements for using the Graham number formula:

• Price earnings (PE) ratio shall be below or equal to 15, and price to book (PB) ratio shall be below or equal to 1.5;

  or

• PE ratio × PB ratio shall be below or equal to 25.

You can check the price earnings ratio calculator and the price to book ratio calculator to fully understand the drivers of those ratios.

Furthermore, our Graham number calculator also helps you determine the per-share values in case you don't have them. Open the Calculate per share values section of the calculator, and fill in the following values:

• Common outstanding shares: You will find it in the income statement.

• Common shareholders equity: Available in the balance sheet.

• TTM net income to common stockholders: You will find it in the income statement too.

You will see how our tool automatically calculates the per-share values.

We are going to cover TD Synnex corporation for this example. Before the 2020, 2nd quarter earnings report, Synnex was trading at a:

• PE ratio = 9.2
• PB ratio = 1.3

Before the report, the trailing twelve months (TTM) available information was:

• Earnings per share TTM = 10.47 USD/share
• Book value per share = 75.82 USD/share

Because the PE ratio was under 15 and the PB ratio was under 1.5, we can use the Graham number formula to calculate the fair value of the stock.

Our Graham number calculator indicates that the fair value for TD Synnex corporation at that moment was 133.65 USD per share. Was it undervalued or overvalued?

On June 19th, the stock price was 101.80 USD per share, meaning a potential upside of 31%. The stock eventually spun off, releasing its subsidiary Concentrix and making it a public traded company. Shareholders who had Synnex stocks received shares of Concentrix. Up to date (December 14th, 2021), an investment in Synnex, when the stock was trading at 101.8 USD, has returned 172%.

Graham number does not consider essential investing metrics like free cash flow or EBITDA margin, and, as you could have noted, it only serves with companies of positive net income.

Whenever this doesn't apply, we suggest you explore another valuation method:

• EBITDA multiple – You could use this method whenever the company has positive EBITDA or for companies in which depreciation and amortization greatly affect their net income results.
• EV to sales calculator – We recommend using it when companies do not generate positive operating income or cash flows yet.

Use them if your stock price is quite above the graham number. If you are still uncomfortable with the price, you can dollar cost average by buying the stock periodically at different prices.