Benjamin Graham Intrinsic Value Formula: Complete Tutorial with Step-by-Step Examples

If Warren Buffett calls Benjamin Graham "the greatest investment advisor of the twentieth century," maybe we should pay attention to his formulas.

Graham's intrinsic value formula has helped value investors identify undervalued stocks for over 60 years. But here's the problem: most explanations either oversimplify it to uselessness or overcomplicate it into academic jargon.

This tutorial cuts through both extremes. You'll learn the Benjamin Graham intrinsic value formula step-by-step, see it applied to three real stocks with current 2026 data, and understand exactly when to use it (and when not to).

No finance degree required. Just basic math and 20 minutes of your time.

What Is the Benjamin Graham Intrinsic Value Formula?

The Benjamin Graham intrinsic value formula estimates what a stock is actually worth based on its earnings and expected growth rate. Graham published this formula in 1962 as a practical tool for everyday investors to avoid overpaying for stocks.

Here's the complete formula:

V = EPS × (8.5 + 2g) × 4.4 / Y

Where:

• V = Intrinsic value per share
• EPS = Earnings per share (trailing twelve months)
• 8.5 = Base P/E ratio for a zero-growth company
• g = Expected annual earnings growth rate (%)
• 4.4 = Average AAA corporate bond yield when Graham created the formula
• Y = Current AAA corporate bond yield

The formula tells you the maximum price you should pay for a stock given its current earnings and growth prospects.

Understanding Each Component of the Graham Formula

Earnings Per Share (EPS)

This is the company's net income divided by the number of outstanding shares. Always use the trailing twelve months (TTM) EPS for the most current picture.

Where to find it: Yahoo Finance, Google Finance, or our free stock screener.

The Base P/E (8.5)

Graham believed a company with zero growth deserved a P/E ratio of 8.5. This reflects the minimum value based purely on current earnings without any growth premium.

Growth Rate (g)

The trickiest part. Graham recommended using analyst estimates for expected growth over the next 7-10 years. If unavailable, use the company's historical earnings growth rate.

Pro tip: Be conservative. It's better to underestimate growth than overestimate it.

Bond Yield Adjustment (4.4/Y)

This adjusts the formula for current interest rates. When bonds pay more, stocks become relatively less attractive, so their intrinsic value decreases.

Current Y value: As of March 2026, AAA corporate bonds yield approximately 5.2%.

Benjamin Graham Intrinsic Value Formula: Step-by-Step Tutorial

Let's walk through the formula with Apple (AAPL) using real March 2026 data.

Step 1: Gather the Numbers

• Current stock price: $185.42
• EPS (TTM): $6.58
• Expected growth rate: 8% (analyst consensus)
• Current AAA bond yield: 5.2%

Step 2: Apply the Formula

V = EPS × (8.5 + 2g) × 4.4 / Y V = $6.58 × (8.5 + 2×8) × 4.4 / 5.2 V = $6.58 × (8.5 + 16) × 4.4 / 5.2 V = $6.58 × 24.5 × 4.4 / 5.2 V = $6.58 × 24.5 × 0.846 V = $136.42

Step 3: Compare to Market Price

• Intrinsic value: $136.42
• Current price: $185.42
• Verdict: Overvalued by 36%

According to Graham's formula, Apple is trading above its intrinsic value in March 2026.

Real Stock Examples: Graham Formula in Action

Example 1: Johnson & Johnson (JNJ)

March 2026 data:

• Stock price: $158.73
• EPS (TTM): $8.95
• Expected growth: 5%
• AAA yield: 5.2%

Calculation: V = $8.95 × (8.5 + 10) × 4.4 / 5.2 V = $8.95 × 18.5 × 0.846 V = $140.04

Result: Intrinsic value of $140.04 vs. current price of $158.73. Overvalued by 13%.

Example 2: AT&T (T)

March 2026 data:

• Stock price: $18.42
• EPS (TTM): $1.85
• Expected growth: 2%
• AAA yield: 5.2%

Calculation: V = $1.85 × (8.5 + 4) × 4.4 / 5.2 V = $1.85 × 12.5 × 0.846 V = $19.56

Result: Intrinsic value of $19.56 vs. current price of $18.42. Undervalued by 6%.

Example 3: Coca-Cola (KO)

March 2026 data:

• Stock price: $62.18
• EPS (TTM): $2.69
• Expected growth: 4%
• AAA yield: 5.2%

Calculation: V = $2.69 × (8.5 + 8) × 4.4 / 5.2 V = $2.69 × 16.5 × 0.846 V = $37.54

Result: Intrinsic value of $37.54 vs. current price of $62.18. Overvalued by 66%.

When to Use the Benjamin Graham Intrinsic Value Formula

Best For:

• Mature, stable companies with predictable earnings
• Dividend-paying stocks with long operating histories
• Low-growth, steady businesses (utilities, consumer staples)
• Initial screening to identify potentially undervalued stocks

Not Suitable For:

• High-growth tech stocks (formula caps growth at reasonable levels)
• Cyclical companies with volatile earnings
• Unprofitable companies (negative EPS breaks the formula)
• Asset-heavy businesses where book value matters more than earnings

Common Mistakes When Using Graham's Formula

1. Using Forward EPS Instead of TTM

Always use trailing twelve months earnings. Forward estimates are often optimistic and unreliable.

2. Overestimating Growth Rates

Graham was conservative by nature. If analysts predict 15% growth, consider using 10-12% instead.

3. Ignoring the Business Quality

The formula doesn't account for competitive advantages, brand strength, or management quality. Use it as a starting point, not a final decision.

4. Not Adjusting for Current Interest Rates

Always use the current AAA bond yield (Y). This adjustment is crucial in different interest rate environments.

Using Our Benjamin Graham Calculator

Skip the manual math with our free Benjamin Graham intrinsic value calculator. Simply input:

1. Stock ticker
2. Expected growth rate
3. Click "Calculate"

The calculator automatically pulls current EPS data and bond yields, giving you instant intrinsic value estimates for any stock.

Benjamin Graham Formula vs. Other Valuation Methods

vs. P/E Ratio

The Graham formula provides context for P/E ratios by factoring in growth and interest rates. A P/E of 20 might be reasonable for a 15% grower in a low-rate environment but expensive for a 3% grower when rates are high.

vs. Discounted Cash Flow (DCF)

DCF models are more comprehensive but require more assumptions. The Graham formula is simpler and faster, making it ideal for initial screening.

vs. Price-to-Book Ratio

Graham's formula focuses on earnings power rather than asset values. For service businesses with few assets, earnings matter more than book value.

Building a Portfolio with Graham's Principles

Step 1: Screen for Candidates

Use our stock screener to find stocks trading below their Graham intrinsic value. Filter for:

• P/E ratio under 15
• Positive earnings growth
• Dividend yield above 2%

Step 2: Apply the Formula

Calculate intrinsic value for each candidate. Focus on stocks trading at least 20% below their calculated value for a margin of safety.

Step 3: Verify the Business Quality

The formula doesn't capture everything. Research:

• Competitive position
• Debt levels
• Management track record
• Industry trends

Step 4: Diversify

Don't put all your money in value stocks. Balance your portfolio with growth stocks, international exposure, and bonds.

Advanced Tips for Using Graham's Formula

Adjusting for Different Business Models

• For REITs: Use funds from operations (FFO) instead of EPS
• For cyclical stocks: Use average earnings over a full cycle
• For seasonal businesses: Ensure TTM EPS covers all four quarters

Industry-Specific Considerations

• Utilities: Often trade closer to intrinsic value due to regulation
• Tech stocks: Formula may undervalue companies with network effects
• Banks: Consider book value alongside Graham calculations

What Warren Buffett Says About Graham's Methods

Buffett learned from Graham at Columbia Business School and worked for him at Graham-Newman Corp. He credits Graham with teaching him three key principles:

1. Stocks are pieces of businesses, not just ticker symbols
2. Market fluctuations are opportunities, not guides
3. Always maintain a margin of safety

The intrinsic value formula embodies all three principles by focusing on business fundamentals rather than market sentiment.

Getting Started: Your Next Steps

Ready to apply the Benjamin Graham intrinsic value formula? Here's your action plan:

1. Try Our Calculator

Test the Benjamin Graham calculator with three stocks you're considering. Compare the results to current market prices.

2. Start a Watchlist

Create a list of stocks trading below their Graham intrinsic value. Monitor them for better entry points.

3. Open a Brokerage Account

Ready to invest? Consider these platforms for value investing:

Moomoo - Advanced research tools and real-time data perfect for value analysis. Get up to $2,000 in stock rewards when you fund your account.

Webull - Commission-free trading with detailed fundamental analysis. New users get fractional shares worth up to $300.

4. Keep Learning

Value investing is a skill that improves with practice. Read Graham's "The Intelligent Investor" and track your investment decisions over time.

Conclusion: The Power of Benjamin Graham's Wisdom

The Benjamin Graham intrinsic value formula isn't perfect, but it's practical. In a market full of speculation and hype, it provides a rational framework for estimating what stocks are actually worth.

Remember: the goal isn't to find the "correct" intrinsic value (impossible) but to think independently about stock prices. When you have a calculated estimate of value, you're less likely to get swept up in market emotions.

Use the formula as your starting point, not your ending point. Combine it with other analysis, maintain a margin of safety, and always keep learning.

After all, as Graham himself wrote: "The essence of investment management is the management of risks, not the management of returns."

Start calculating intrinsic values today. Your future self will thank you.

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Ready to find undervalued stocks? Try our free Graham intrinsic value calculator and advanced stock screener to identify potential value investments.