DSE Graham Number Calculator

What is the Graham Number?

The Graham Number is a formula used to calculate the Maximum Intrinsic Value of a stock. It was popularized by Benjamin Graham, the father of Value Investing and the mentor of Warren Buffett. The formula is designed to find a price where the company's earnings and its asset value are both reasonably priced.

The Formula

The Graham Number is the square root of (22.5 × EPS × NAVPS).

• EPS (Earnings Per Share): The company's net profit divided by its total shares.
• NAVPS (Net Asset Value Per Share): The total assets minus liabilities, divided by total shares.
• 22.5: This is a constant derived from Graham's belief that a defensive investor should not pay more than a P/E of 15 and a P/B (Price to Book) of 1.5. (15 × 1.5 = 22.5).

How to use it on the DSE?

In the Bangladesh market, where many companies have strong physical assets (Land, Factory) and stable earnings, the Graham Number is a powerful tool to filter out "Overhyped" stocks.

1. Identify Undervalued Stocks: If the current market price of a DSE stock (e.g., in the Banking or Cement sector) is lower than its Graham Number, it is technically undervalued and provides a Margin of Safety.
2. Avoid Value Traps: If the Graham Number is very low compared to the price, you might be paying too much for the stock's actual physical and earning capacity.

Limitations to Consider:

While the Graham Number is excellent for "Defensive" companies with tangible assets, it might not be suitable for:

• Growth Stocks: IT or High-Growth companies often trade at much higher premiums because of their future potential, which isn't captured by the Graham Number.
• Companies with Negative Earnings: The formula doesn't work if EPS is negative.
• Financial Institutions: Banks and NBFIs have different asset structures where NAVPS might not reflect their true value as accurately.