DEFINITION of '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:
INVESTOPEDIA EXPLAINS 'Graham Number'
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 largecap 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.

Earnings Per Share  EPS
The portion of a company's profit allocated to each outstanding ... 
PriceToBook Ratio  P/B Ratio
A ratio used to compare a stock's market value to its book value. ... 
PriceEarnings Ratio  P/E Ratio
A valuation ratio of a company's current share price compared ... 
Benjamin Graham
A scholar and financial analyst who is widely recognized as the ... 
Book Value Of Equity Per Share ...
A financial measure that represents a per share assessment of ... 
Value Investing
The strategy of selecting stocks that trade for less than their ...

Investing Basics
The Intelligent Investor: Benjamin Graham
Learn about the man who mentored Warren Buffett, who eventually became the investing "Oracle of Omaha". 
Active Trading
Value Investing
Learn everything there is to know about value investing. 
Active Trading
The Value Investor's Handbook
Learn the technique that Buffett, Lynch and other pros used to make their fortunes. 
Fundamental Analysis
Value Investing Using The Enterprise Multiple
This simple measure can help investors determine whether a stock is a good deal. 
Active Trading
Value Investing + Relative Strength = Higher Returns
Buying value stocks that are moving higher helps investors steer clear of value traps. 
Fundamental Analysis
What is a good interest coverage ratio?
Learn the importance of the interest coverage ratio, one of the primary debt ratios analysts use to evaluate a company's financial health. 
Fundamental Analysis
What is a bad interest coverage ratio?
Understand how interest coverage ratio is calculated and what it signifies, and learn what market analysts consider to be an unacceptably low coverage ratio. 
Technical Indicators
What is a good gearing ratio?
Understand the meaning of the gearing ratio, how it is calculated, the definition of high and low gearing, and how they reflect relative financial stability. 
Investing Basics
What is the difference between the gearing ratio and the debttoequity ratio?
Dive deeper into gearing ratios: what are they, how are they used and why the debt to equity ratio is one of the most popular analytical gearing tools. 
Investing Basics
What is the difference between interest coverage ratio and TIE?
Read about the times interest earned, also known as the interest coverage ratio. Find out why this is an important ratio for investors and creditors.