Stock Intrinsic Value Calculator
Intrinsic value is what a stock is truly worth based on fundamentals — not what the market currently prices it at. When the market price is below intrinsic value, you have a margin of safety. This calculator uses the Graham Number and P/E analysis to estimate fair value.
Enter the stock's EPS, book value, current price, and growth expectations to get multiple valuation estimates and margin of safety analysis.
The Graham Number: Benjamin Graham's Defensive Valuation
Benjamin Graham — Warren Buffett's mentor and author of "The Intelligent Investor" — developed a simple formula for conservative investors: the maximum price a defensive investor should pay is the square root of (22.5 × EPS × Book Value Per Share). The 22.5 reflects his belief that no stock should have a P/E above 15 or a price-to-book ratio above 1.5 (15 × 1.5 = 22.5).
The Graham Number is conservative by design — it works best for mature, asset-heavy businesses in traditional industries. For technology companies, fast-growing businesses, or service companies with low book values, the Graham Number often produces unrealistically low values. Use it as one data point, not the final answer.
P/E Based Valuation
The simplest relative valuation: if a company earns $3.20/share and comparable companies in its sector trade at 18× earnings, the stock should be worth approximately $57.60 (18 × $3.20). This approach is most useful when comparing within an industry where companies have similar growth profiles and risk characteristics.
The P/E method breaks down for companies with negative earnings, cyclical businesses at peak earnings, or high-growth companies where the sector P/E doesn't reflect the individual company's growth rate. For these, a DCF or PEG ratio (P/E ÷ growth rate) is more appropriate.
Margin of Safety: Protecting Against Valuation Error
No valuation method is precise. Earnings estimates, growth rates, and discount rates are all assumptions that can be wrong. The margin of safety — buying at a meaningful discount to your estimated intrinsic value — provides a buffer against being wrong. Graham typically recommended a 25%–50% margin of safety. If your valuation estimate is $80 and you buy at $60, a 25% error in your estimate still leaves you at breakeven.
For a broader guide to value investing principles, see investing basics. For understanding how the CAGR of a stock return compares to alternatives, use the CAGR Calculator.
Frequently Asked Questions
What is intrinsic value?
The estimated true worth of a stock based on fundamentals (earnings, assets, growth), independent of market price. Value investors compare intrinsic value to market price to find stocks trading below their worth — the margin of safety. Valuation is inherently uncertain; use multiple methods and require a meaningful discount before buying.
What is the Graham Number?
Graham Number = √(22.5 × EPS × Book Value Per Share). Represents the maximum price a defensive investor should pay. Best for mature, asset-backed businesses. Often produces low values for growth companies or businesses with intangible-heavy balance sheets. It's a starting point, not a definitive answer.
What is margin of safety?
The gap between intrinsic value and current price. If your estimate is $80 and the stock trades at $60, the margin of safety is 25%. It protects against valuation errors and unexpected business deterioration. Graham recommended 25%–50% margins; the larger the uncertainty in the estimate, the larger the margin needed.
Is the Graham Number still useful?
For traditional, asset-heavy businesses (banks, industrials, utilities, consumer staples) — yes, it's a useful conservative valuation screen. For technology, growth, or service companies with low book values — less so. Modern analysts often supplement it with DCF models, EV/EBITDA multiples, and sector-specific metrics.
What P/E ratio is considered cheap?
The S&P 500's historical average P/E is approximately 15–17×. A stock with a P/E below 15 is often considered "value" territory. However, P/E must be evaluated relative to the company's growth rate (use PEG = P/E ÷ growth rate; under 1 is attractive) and sector peers. A low P/E can reflect genuine undervaluation or a struggling business.
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