The Graham Number is a quick formula for estimating a conservative fair value for a defensive stock, devised by Benjamin Graham. It is the square root of 22.5 multiplied by earnings per share and book value per share. If a stock trades below its Graham Number, it may be undervalued by this measure.
Worked example
For a stock with EPS of $4 and book value per share of $30: Graham Number = √(22.5 × 4 × 30) = √2,700 ≈ $52. A price below $52 would look attractive on this screen.
Why it matters
The Graham Number is a fast first filter, not a full valuation. It works best for stable, profitable companies and breaks down for firms with negative earnings, high growth, or asset-light business models.
Frequently asked questions
Graham combined a maximum price-to-earnings of 15 with a maximum price-to-book of 1.5; multiplying them gives 22.5.