Graham Number

Graham Number

A figure that measures a stock's fundamental value by taking into account the company's earnings per share and book value per share. The Graham number is the upper bound of the price range that a defensive investor should pay for the stock. According to the theory, any stock price below the Graham number is considered undervalued, and thus worth investing in. The formula is as follows:

The Graham number is named after the "father of value investing," Benjamin Graham. It is used as a general test when trying to identify stocks that are currently selling for a good price. The 22.5 is included in the number to account for Graham's belief that the price to earnings ratio should not be over 15 and the price to book ratio should not be over 1.5 (15 x 1.5 = 22.5). It does leaves out many fundamental characteristics which make up a good investment, and is not effective for the majority of medium- to large-cap stocks.

For example, if the earning per share is $1.50, book value per share is $10, the Graham number would be 18.37. If the stock price is $16, you should buy the stock. If the stock price is $19, and you own it, you should sell the stock.

Investment dictionary. . 2012.

Look at other dictionaries:

  • Graham's number — Graham s number, named after Ronald Graham, is a large number that is an upper bound on the solution to a certain problem in Ramsey theory. This number gained a degree of popular attention when Martin Gardner described it in the Mathematical… …   Wikipedia

  • Graham Stack (producer/writer) — Graham Stack is an English born record producer and songwriter who has written and produced hit records for many artists including Kylie Minogue, Tina Turner, Take That, Rod Stewart and Steps.Graham also produced 3 albums for X factor stars G4… …   Wikipedia

  • Graham Wilson (Author, Mentor, and Chaplain) — Graham Wilson (b Wimbledon, London, 2 April 1958), son of George Wilson (1928 ) and Betty Dorothy Wilson (1929 ), is a UK based leadership and organisation development specialist. Education He attended Eggar s Grammar School, Alton, from 1970 to… …   Wikipedia

  • Graham — or Graeme is the name of a Scottish family, Clan Graham, which has given its name to many things:People*For people with Graham as a surname see Graham (surname) *For people with Graham as a given name see lookfrom|Graham *For people with Graeme… …   Wikipedia

  • Number Ones: Up Close and Personal — World Tour Official poster for the tour Tour by Janet Jackson Associated album Number Ones …   Wikipedia

  • Graham Barnfield — (born November 5, 1969, Leicester) is a British academic and pundit associated with the hard left Revolutionary Communist Party (1981 1997).In 1993 he began writing on cultural politics in the United States under President Franklin D. Roosevelt.… …   Wikipedia

  • Graham Nash (Countdown) — Graham Nash (born December 25 1979) is Countdown s 43rd Champion and the 11th Champion of Champions. His current record stands at 15 wins out of 15; one of only two unbeaten champions in the show s history. He later appeared on GrandSlam, losing… …   Wikipedia

  • Graham Taylor (footballer) — Graham Taylor Personal information Full name Graham Taylor Date of birth 15 September 1944 ( …   Wikipedia

  • Graham Masterton — (born January 16, 1946) is a best selling British horror author. Originally editor of Mayfair and the British edition of Penthouse , Graham Masterton s first novel, The Manitou was released in 1976. This novel was adapted in 1978 for the film The …   Wikipedia

  • Graham Meikle — is a media theorist who specialises in many areas, including media activism. Graham Meikle is a media theorist who specialises in many areas, including media activism. Graham Meikle is a senior lecturer and author teaching in the Media and… …   Wikipedia