Graham's Number for Value
Benjamin Graham, considered the "father of value investing" and mentor to Warren Buffett, came up with a formula for a stock's fundamental value. Its formula is pretty straight forward: simply take the square root of EPS times book value/share times 22.5. Graham suggested that stocks trading below this number were inherently under-valued by the market, and hence a good investment. The 22.5 comes directly from Graham where he believed that a stock's P/E ratio should not be above 15, and its price to book value no greater than 1.5 (15 * 1.5 = 22.5). In practice, this number works best for micro-cap stocks.
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SP500 members only
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