Benjamin Graham Intrinsic Value Formula — Complete Guide with Examples (2026)
Last updated: March 5, 2026 — All stock data sourced from StockAnalysis.com and Google Finance.
There's a formula that can tell you — in about 30 seconds — whether a stock is overpriced, fairly valued, or a potential bargain.
No guessing. No vibes. No "I think the market's gonna go up." Just cold, honest math.
It was created by Benjamin Graham, the man who literally wrote the book on value investing. Warren Buffett called him the greatest investing mind of the 20th century. Buffett's net worth is about $130 billion. So maybe we should listen.
This guide breaks down Graham's intrinsic value formula step by step, walks through 3 real stock examples with current 2026 numbers, and shows you exactly when to use it — and when not to.
Let's get into it.
What Is the Graham Intrinsic Value Formula?
Benjamin Graham published this formula in the 1962 revision of Security Analysis. It was his attempt to give everyday investors a simple way to estimate what a stock is actually worth — its intrinsic value — based on earnings and growth.
Here's the formula:
V = EPS × (8.5 + 2g) × 4.4 / Y
That's it. Four variables. One answer.
Let's break down each piece:
| Variable | What It Means | Where to Find It |
|---|---|---|
| V | Intrinsic value per share (what the stock is "worth") | This is what you're solving for |
| EPS | Earnings per share (trailing twelve months) | Any financial site — Yahoo Finance, StockAnalysis.com |
| 8.5 | The P/E ratio Graham assigned to a company with zero growth | Built into the formula (constant) |
| 2g | Two times the expected annual earnings growth rate (%) over 7-10 years | Analyst estimates or historical growth rate |
| 4.4 | The average AAA corporate bond yield in 1962 when Graham created the formula | Built into the formula (constant) |
| Y | The current AAA corporate bond yield | Moody's AAA bond yield (currently ~5.29%) |
Why Each Piece Matters
EPS is the foundation — it tells you how much the company actually earns per share.
8.5 + 2g is the "growth multiplier." A company with zero growth gets a P/E of 8.5. Every percentage point of expected growth adds 2 to that multiplier. So a company growing at 10% per year gets: 8.5 + 2(10) = 28.5. That's the P/E ratio the formula says the company deserves.
4.4 / Y is the "bond adjustment." This adjusts for interest rates. When Graham wrote the formula, AAA bonds yielded 4.4%. If today's yield is higher (meaning bonds are more attractive compared to stocks), the formula penalizes stock valuations. If yields are lower, it boosts them.
As of March 2026, the Moody's Seasoned AAA Corporate Bond Yield is 5.29%. So:
4.4 / 5.29 = 0.832
This means the formula applies roughly a 17% discount compared to Graham's original era — interest rates are higher now, so stocks need to "earn" their valuation more.
How to Use the Formula: Step-by-Step
Here's your checklist every time:
- Find the company's EPS (TTM) — trailing twelve months, diluted
- Estimate the growth rate (g) — use analyst consensus or historical 5-year average
- Look up the current AAA corporate bond yield (Y) — ycharts.com has it free
- Plug into the formula: V = EPS × (8.5 + 2g) × 4.4 / Y
- Compare V to the current stock price — if V > price, the stock might be undervalued
Simple, right? Let's run three real examples.
Example 1: Johnson & Johnson (JNJ) — The Steady Giant
Johnson & Johnson is the kind of stock Graham would have loved: diversified healthcare company, 62 consecutive years of dividend increases, and consistent earnings.
The Numbers (as of March 2026)
| Metric | Value |
|---|---|
| Current Stock Price | $245.30 |
| EPS (TTM, diluted) | $11.03 |
| Revenue Growth (YoY) | 5.4% |
| EPS Growth (YoY) | 22.7% |
| 5-Year Average EPS Growth | ~8% |
| Dividend Yield | 2.12% |
| P/E Ratio | 22.24 |
For the growth rate, let's be conservative and use 8% — roughly JNJ's 5-year average earnings growth, not the inflated 22.7% from 2025 which included recovery from one-time items.
Running the Formula
V = EPS × (8.5 + 2g) × 4.4 / Y
V = $11.03 × (8.5 + 2 × 8) × 4.4 / 5.29
V = $11.03 × (8.5 + 16) × 0.832
V = $11.03 × 24.5 × 0.832
V = $11.03 × 20.38
V = $224.79
The Verdict
| Graham Intrinsic Value | $224.79 |
| Current Market Price | $245.30 |
| Premium/Discount | +9.1% overvalued |
At $245.30, JNJ is trading about 9% above its Graham intrinsic value. That doesn't make it a terrible stock — it's a world-class company — but Graham would say you're not getting a bargain here. You're paying a slight premium for quality.
A true Graham investor would wait for a pullback to the $200-$225 range before buying. At $200, you'd have roughly an 11% margin of safety.
Example 2: Coca-Cola (KO) — The Dividend King
Coca-Cola has raised its dividend for 63 consecutive years. Buffett has owned it since 1988. But is it a good value today?
The Numbers (as of March 2026)
| Metric | Value |
|---|---|
| Current Stock Price | $78.10 |
| EPS (FY 2025, diluted) | $3.04 |
| Revenue Growth (YoY) | 1.87% |
| EPS Growth (FY 2025) | 23.6% |
| 5-Year Average EPS Growth | ~5% |
| Dividend Yield | 2.6% |
| Annual Dividend | $2.04/share |
Coca-Cola's 23.6% EPS growth in 2025 was a bounce-back year. The 5-year average is closer to 5% — a mature, slow-growing consumer staple. Let's use that.
Running the Formula
V = $3.04 × (8.5 + 2 × 5) × 4.4 / 5.29
V = $3.04 × (8.5 + 10) × 0.832
V = $3.04 × 18.5 × 0.832
V = $3.04 × 15.39
V = $46.79
The Verdict
| Graham Intrinsic Value | $46.79 |
| Current Market Price | $78.10 |
| Premium/Discount | +66.9% overvalued |
Ouch. The Graham formula says Coca-Cola is worth about $47, but the market is pricing it at $78. That's a massive 67% premium.
Does this mean KO is a bad company? Absolutely not. It means the market is paying a big premium for Coca-Cola's brand, reliability, and dividend track record. Graham's formula captures earning power and growth — it doesn't capture brand value, moats, or emotional investor attachment.
This is a critical lesson: Graham's formula tends to undervalue "premium" stocks with strong brands and wide moats. It's most useful for companies that earn their valuation through pure earnings and growth, not brand prestige.
Example 3: Microsoft (MSFT) — The Growth Machine
Now let's try a high-growth stock. Microsoft has been on a tear thanks to cloud computing and AI.
The Numbers (as of March 2026)
| Metric | Value |
|---|---|
| Current Stock Price | $405.20 |
| EPS (TTM, diluted) | $15.99 |
| Revenue Growth (YoY) | 16.7% |
| EPS Growth (TTM) | 28.7% |
| 5-Year Average Revenue Growth | ~15% |
| Analyst Consensus Growth Estimate | ~14% |
| P/E Ratio | 25.36 |
Microsoft is genuinely growing fast. Let's use 14% — the analyst consensus forward growth rate, which is reasonable given the AI tailwinds.
Running the Formula
V = $15.99 × (8.5 + 2 × 14) × 4.4 / 5.29
V = $15.99 × (8.5 + 28) × 0.832
V = $15.99 × 36.5 × 0.832
V = $15.99 × 30.37
V = $485.62
The Verdict
| Graham Intrinsic Value | $485.62 |
| Current Market Price | $405.20 |
| Premium/Discount | -16.6% undervalued |
Now that's interesting. According to Graham's formula, Microsoft is actually trading below its intrinsic value by about 17%.
Why? Because the formula heavily rewards high growth. At 14% growth, the P/E multiplier is 36.5 — and Microsoft's actual P/E is only 25.36. The formula is saying: "For a company growing this fast, you're getting a reasonable price."
Of course, the catch is that the growth estimate has to be right. If Microsoft only grows at 8% instead of 14%, the intrinsic value drops to about $335 — which would make it overvalued. The growth rate assumption is everything.
Summary: Three Stocks, Three Verdicts
| Stock | Price | Graham Value | Status |
|---|---|---|---|
| JNJ | $245.30 | $224.79 | ⚠️ Slightly overvalued (+9%) |
| KO | $78.10 | $46.79 | 🔴 Significantly overvalued (+67%) |
| MSFT | $405.20 | $485.62 | 🟢 Undervalued (-17%) |
The formula tells you something the market often doesn't: expensive stocks aren't always overvalued, and "safe" stocks aren't always cheap.
Graham Number vs. Intrinsic Value Formula: What's the Difference?
Graham actually created two valuation tools, and people confuse them constantly. Let's clear this up.
The Graham Number
Graham Number = √(22.5 × EPS × BVPS)
Where BVPS = Book Value Per Share.
The Graham Number is a quick screening tool. It tells you the maximum price you should pay for a stock based on Graham's criteria that:
- The P/E ratio should be under 15
- The price-to-book ratio should be under 1.5
- Combined: 15 × 1.5 = 22.5
Use the Graham Number when: You want a quick, conservative "maximum buy price" for screening large numbers of stocks. It's binary — stock is either above or below the number.
The Intrinsic Value Formula
V = EPS × (8.5 + 2g) × 4.4 / Y
The intrinsic value formula is more nuanced. It accounts for:
- Future growth expectations
- Current interest rate environment
- Varying levels of company quality
Use the Intrinsic Value Formula when: You want to do deeper analysis on specific stocks, compare growth rates, or understand how much under/overvalued a stock might be.
Side-by-Side Comparison
| Feature | Graham Number | Intrinsic Value Formula |
|---|---|---|
| Inputs | EPS + Book Value | EPS + Growth Rate + Bond Yield |
| Considers Growth? | No | Yes |
| Adjusts for Interest Rates? | No | Yes |
| Best For | Quick screening | Deep analysis |
| Conservative? | Very | Moderate |
| Requires Growth Estimate? | No | Yes |
Pro tip: Use the Graham Number first to screen for cheap stocks, then run the intrinsic value formula on the ones that pass to get a more refined estimate.
👉 Try our free Graham Number Calculator to screen stocks instantly.
Common Mistakes When Using the Formula
Mistake 1: Using Unrealistic Growth Rates
The #1 way people screw this up. If you plug in 20% growth for a utility company, you'll get a sky-high intrinsic value that's meaningless. Graham himself recommended capping growth at 15-20% for even the fastest growers, because maintaining that pace for 7-10 years is extremely rare.
Mistake 2: Ignoring Negative or Irregular EPS
If a company lost money last year (negative EPS), the formula literally breaks — you get a negative intrinsic value. For companies with wildly volatile earnings (cyclicals, pandemic-affected companies), use a 3-year or 5-year average EPS instead.
Mistake 3: Forgetting the Bond Yield Adjustment
Many people share the formula as just V = EPS × (8.5 + 2g) and skip the 4.4/Y adjustment. That was only accurate in 1962 when AAA bonds yielded exactly 4.4%. Today, with the AAA yield at 5.29%, skipping this adjustment will overvalue every stock by about 20%.
Mistake 4: Treating It as Gospel
Graham himself said the formula is an approximation. It's a starting point, not the final answer. Always combine it with:
- Analysis of the balance sheet (debt levels)
- Free cash flow trends
- Management quality
- Competitive position (moat)
- P/E ratio context
The Margin of Safety: Graham's Most Important Concept
Even after calculating intrinsic value, Graham said you shouldn't buy at that exact price. You need a margin of safety — a discount that protects you from errors in your estimates.
Graham recommended buying only when the market price is at least 25-35% below intrinsic value.
Using our Microsoft example:
- Intrinsic value: $485.62
- 25% margin of safety: $485.62 × 0.75 = $364.22
- Current price: $405.20
Even though MSFT is "undervalued" by the formula, it's still above the margin-of-safety buy price. A disciplined Graham investor would wait for a drop to the mid-$360s before pulling the trigger.
That's patience. That's discipline. That's value investing.
👉 Learn more about margin of safety
How to Apply This Today
Here's your action plan:
- Pick 5-10 stocks you're interested in
- Gather the data: EPS (TTM), analyst growth estimates, and the current AAA bond yield (5.29% as of March 2026)
- Run the formula for each stock
- Apply a 25-35% margin of safety to the intrinsic value
- Only buy stocks trading below that safety-adjusted price
- Re-run quarterly as earnings update
You don't need expensive software or a finance degree. You need a calculator, 15 minutes, and the willingness to be patient.
👉 Use our free Intrinsic Value Calculator to skip the math and get results instantly.
Ready to Start Value Investing?
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FAQ
Is the Graham intrinsic value formula still relevant in 2026?
Yes. The formula's core logic — valuing earnings and growth adjusted for interest rates — is timeless. The specific numbers change (bond yields, EPS, growth), but the framework works just as well today as in 1962.
What's a good growth rate to use?
Use the lower of: (1) analyst consensus forward estimates, or (2) the company's 5-year historical growth average. Never use more than 15-20% even for the fastest growers.
Can I use this formula for all stocks?
Not really. It works best for profitable, established companies with positive and consistent earnings. It doesn't work for unprofitable companies, SPACs, pre-revenue startups, or highly cyclical businesses.
How is this different from a DCF model?
A DCF (Discounted Cash Flow) model projects future cash flows and discounts them back to present value. Graham's formula is a simplified version of the same concept — it's faster and easier but less precise. Think of it as the "back of the napkin" version of a DCF.
Related Tools
- Graham Number Calculator — Calculate the Graham Number for any stock
- P/E Ratio Calculator — Quickly evaluate price-to-earnings
- Dividend Calculator — Project your dividend income growth
Disclosure: This article contains affiliate links. If you open an account through our links, we may receive a commission at no additional cost to you. All data sourced from StockAnalysis.com and Moody's via YCharts as of March 2026. This is educational content, not financial advice. Always do your own research before investing.
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