Graham Number = √(22.5 × EPS × Book Value per Share)
The Graham number is Benjamin Graham's rough fair-value ceiling for a defensive stock.
What it is
The Graham Number is a back-of-envelope ceiling on what a conservative ("defensive") investor should pay for a stock, derived from guidelines in Benjamin Graham's The Intelligent Investor. It equals the square root of 22.5 times earnings per share (EPS) times book value per share (the company's net assets divided by shares outstanding). The 22.5 constant comes from pairing Graham's two screens: a maximum price-to-earnings (P/E) of 15 and a maximum price-to-book (P/B) of 1.5, since 15 × 1.5 = 22.5. A market price below the Graham Number flags a stock as potentially undervalued on those two metrics.
Why it matters
It is a fast, transparent sanity check for value investors that bakes a margin of safety into one number, useful for screening asset-heavy, profitable companies. The pitfall: it ignores growth, brand, software, and other intangibles, so it badly understates fair value for asset-light or high-growth firms (think a profitable software or pharma company with thin book value). It also breaks down entirely when EPS or book value per share is negative, since you cannot take a real square root of a negative product, and using a single year's EPS can distort it for cyclical businesses.
How it's calculated
Take the company's earnings per share and its book value per share, multiply them together, multiply that product by the constant 22.5, then take the square root of the result. Graham preferred using a multi-year average EPS to smooth out boom-and-bust years rather than a single noisy year. Compare the output to the current share price: trading below it suggests undervaluation on Graham's strict P/E and P/B criteria.
How Quintarthai uses it
On a company's deep-analysis page at /app/ you can read off the EPS, book value per share, P/E, and P/B inputs that drive the Graham Number, and use the stock screener to filter for names trading below classic Graham-style value thresholds. See related valuation concepts in the Knowledge Base.
Cross-border note. The formula is currency-agnostic and works identically for US and Canadian stocks, but always compute it in the same currency for EPS, book value, and price — a TSX-listed name reports in CAD while its US ADR or cross-listing trades in USD, so mixing the two distorts the result. Both US GAAP and Canadian IFRS book values can be inflated by goodwill and intangibles, so the number is most reliable for tangible-asset-heavy issuers in either market.
FAQ
What if a company has negative earnings or negative book value?
The Graham Number cannot be computed, because multiplying EPS by book value gives a negative product and there is no real square root of a negative number. Treat the stock as 'not applicable' for this metric rather than forcing a value.
Does a price below the Graham Number mean I should buy?
No. It is one screen, not a buy signal. Graham used it alongside criteria like debt levels, earnings stability, and dividend history, and it systematically undervalues high-growth and asset-light businesses, so confirm with other valuation work.
Check your understanding
A profitable software company trades at $90. Its EPS is $2.00 and its book value per share is only $5.00 because most of its value is in intangible code and brand, not physical assets. You compute the Graham Number and consider it a verdict on fair value. What is the most accurate conclusion?
√(22.5 × 2 × 5) = √225 = $15, but the Graham Number is built for asset-heavy firms and ignores intangibles and growth, so it understates fair value for an asset-light software company rather than proving it is overvalued.