Calculate Benjamin Graham's maximum fair price from EPS and book value per share using the classic defensive investor formula.
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Value Investing
The Graham Number is a conservative estimate of the maximum price a defensive investor should pay for a stock, based on Benjamin Graham's criteria from The Intelligent Investor. It combines earnings per share and book value per share into a single fair-value figure.
Graham believed that a defensive investor should not pay more than 15× earnings (P/E ≤ 15) or more than 1.5× book value (P/B ≤ 1.5). The Graham Number combines both constraints: √(22.5 × EPS × BVPS), where 22.5 = 15 × 1.5.
If the stock trades below the Graham Number, it may be undervalued by Graham's conservative criteria. If above, it fails at least one of his price tests.
The square root of the product of 22.5, EPS, and book value.
Graham Number = √(22.5 × EPS × Book Value Per Share)
22.5 = 15 (max P/E) × 1.5 (max P/B). Both EPS and BVPS must be positive.
A company has EPS of 6 and book value of 40 per share. Graham Number = √(22.5 × 6 × 40) = √5400 ≈ 73.48. If the stock trades below 73.48, it passes Graham's test.
Designed for mature, profitable companies with tangible assets. Not suitable for growth stocks, loss-making firms, or asset-light businesses. The 15× P/E and 1.5× P/B thresholds reflect 1970s market conditions and may be conservative for today's market.
Frequently asked questions
22.5 = 15 × 1.5. Graham recommended a maximum P/E of 15 and maximum P/B of 1.5 for defensive investors. The Graham Number enforces both constraints simultaneously.
Generally no. Tech companies often have high P/E ratios, minimal book value, and derive most value from intangible assets. The Graham Number would reject almost all tech stocks, which was not Graham's intent — he designed it for industrial and financial companies.
The concept of buying below fair value remains timeless. However, the specific thresholds (P/E ≤ 15, P/B ≤ 1.5) are conservative by modern standards. Many value investors use the Graham Number as one screening tool among several.
The formula requires both to be positive. Negative earnings or negative book value make the Graham Number undefined — and the company would not qualify as a Graham-style defensive investment regardless.
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