Graham Number
Benjamin Graham's intrinsic-value heuristic for defensive investors: the geometric mean of 22.5 times trailing EPS and book value per share. Encodes Graham's belief that P/E should not exceed 15 and P/B should not exceed 1.5 simultaneously.
When to use: Use as a quick conservative-valuation screen. Where market price is below the Graham Number, the stock satisfies Graham's defensive-investor multiples. Most useful for stable, established businesses with positive earnings and book value.
Formula
Variables
| Symbol | Name | Description | Unit |
|---|---|---|---|
| GrahamNum | Graham Number | Graham's intrinsic-value heuristic | $ |
| EPS | Earnings per Share | Trailing or forward EPS | $ |
| BVPS | Book Value per Share | Equity ÷ shares outstanding | $ |
Real-Life Examples
Example 1: Mature Industrial
A defensively-positioned industrial has $4 of EPS and $30 of book value per share.
Given
Step-by-Step
The Graham fair value is $52. Trading below $52 satisfies Graham's twin tests; above $52, at least one of the multiples (P/E > 15 or P/B > 1.5) fails. Useful as a yes/no screen, not a precise valuation.
Frequently Asked Questions
It's Graham's P/E ceiling × P/B ceiling: 15 × 1.5 = 22.5. The formula effectively says "the geometric mean of P/E×EPS×P/B×BVPS at the ceilings is the upper bound of fair value." Squaring and rearranging gives the familiar form.
No — Graham designed this for defensive investors targeting established businesses. Growth companies routinely trade well above the Graham Number because they earn more than 15× P/E and 1.5× P/B can support. Use other frameworks (PEG, DCF) for growth.
The formula breaks (square root of a negative number). Graham's screen explicitly excluded loss-making companies — defensive investors should not be valuing a business with no current earnings using this metric.