How to Calculate Intrinsic Value Using the Benjamin Graham Formula

Last Updated: March 4, 2026

Every stock has two prices: the price the market gives it, and the price it's actually worth. The gap between those two numbers is where value investors make money.

Benjamin Graham — the father of value investing and Warren Buffett's mentor — spent his career developing formulas to find that gap. His intrinsic value formula remains one of the most powerful tools available to individual investors, even decades after he first published it.

In this guide, we'll walk through the Benjamin Graham formula step by step, calculate intrinsic value for real stocks, and show you exactly how to use it in your own investing. No finance degree required.

What Is Intrinsic Value?

Intrinsic value is the true underlying worth of a stock, based on the company's actual financial performance — not market hype, fear, or speculation.

Think of it this way: if you were buying an entire business (not just shares), what would you pay based purely on its earnings, assets, and growth potential?

That's intrinsic value.

When a stock's market price is below its intrinsic value, it's potentially undervalued — a buying opportunity. When the market price is above intrinsic value, the stock may be overpriced.

Graham called the difference between price and intrinsic value the margin of safety — and it's the single most important concept in value investing.

The Benjamin Graham Intrinsic Value Formula

Graham actually published several valuation formulas throughout his career. The most widely used is his growth formula, which appeared in the 1962 edition of Security Analysis and was later revised in 1974.

The Original Formula (1962)

Intrinsic Value = EPS × (8.5 + 2g)

Where:

• EPS = Current earnings per share (trailing twelve months)
• 8.5 = The P/E ratio Graham assigned to a zero-growth company
• g = Expected annual growth rate over the next 7–10 years (expressed as a whole number, not a decimal)

The Revised Formula (1974)

Graham later added a bond yield adjustment to account for interest rates:

Intrinsic Value = [EPS × (8.5 + 2g) × 4.4] / Y

Where:

• 4.4 = The average yield on AAA corporate bonds when Graham wrote the formula
• Y = The current yield on AAA corporate bonds

This adjustment is important because interest rates change the attractiveness of stocks relative to bonds. When bond yields are high, stocks need to be cheaper to compete. When yields are low, stocks can justify higher prices.

Step-by-Step: How to Calculate Intrinsic Value

Let's work through the formula with a real example. We'll use Johnson & Johnson (JNJ) — a classic Graham-style stock.

Step 1: Find Current Earnings Per Share (EPS)

Look up the company's trailing twelve-month (TTM) earnings per share. You can find this on any financial website, earnings reports, or right here on valueofstock.com.

JNJ's current EPS: ~$9.95 (TTM as of early 2026)

Step 2: Estimate the Growth Rate

This is where judgment comes in. Graham recommended using the expected growth rate over the next 7–10 years. Here are your options:

• Analyst consensus estimates (widely available, but can be overly optimistic)
• Historical growth rate (look at the last 5–10 years of EPS growth)
• Conservative estimate (Graham would always lean conservative)

For JNJ, analysts project about 5–6% annual EPS growth over the next several years. Let's use 5% to stay conservative.

Step 3: Find the Current AAA Bond Yield

As of early 2026, the AAA corporate bond yield is approximately 5.1%.

Step 4: Plug Into the Formula

Using the revised (1974) formula:

Intrinsic Value = [EPS × (8.5 + 2g) × 4.4] / Y

Intrinsic Value = [$9.95 × (8.5 + 2(5)) × 4.4] / 5.1
Intrinsic Value = [$9.95 × 18.5 × 4.4] / 5.1
Intrinsic Value = [$810.07] / 5.1
Intrinsic Value = $158.84

Step 5: Compare to Market Price

If JNJ is trading at, say, $155, the stock is trading roughly at its intrinsic value — not a screaming bargain, but fairly valued.

If it dropped to $125, you'd have a margin of safety of about 21% — now we're talking.

Want to skip the math? Use our free stock comparison tool to instantly see valuation metrics for any stock.

Worked Example #2: Coca-Cola (KO)

Let's try another classic value stock.

• EPS (TTM): ~$2.75
• Expected growth rate: 6% (KO has been a steady grower)
• AAA Bond Yield: 5.1%

Intrinsic Value = [$2.75 × (8.5 + 2(6)) × 4.4] / 5.1
Intrinsic Value = [$2.75 × 20.5 × 4.4] / 5.1
Intrinsic Value = [$248.05] / 5.1
Intrinsic Value = $48.64

With KO trading around $62 in early 2026, the Graham formula suggests the stock is trading above its intrinsic value by this measure. That doesn't necessarily mean it's a bad investment — it means you're paying a premium for KO's brand, stability, and dividend history.

Worked Example #3: A Growth Stock — Apple (AAPL)

Here's where the formula gets interesting — and where you'll see its limitations.

• EPS (TTM): ~$7.00
• Expected growth rate: 12%
• AAA Bond Yield: 5.1%

Intrinsic Value = [$7.00 × (8.5 + 2(12)) × 4.4] / 5.1
Intrinsic Value = [$7.00 × 32.5 × 4.4] / 5.1
Intrinsic Value = [$1,001.00] / 5.1
Intrinsic Value = $196.27

Apple trades around $230+ in early 2026. The formula says it's overvalued. But is it really?

This is a critical lesson: the Graham formula was designed for stable, mature companies — not high-growth tech stocks. Apple's ecosystem, services revenue, and brand power justify a premium that a simple EPS-based formula can't capture.

When the Benjamin Graham Formula Works Best

The formula shines when applied to:

• Mature, stable companies with predictable earnings (think consumer staples, utilities, industrials)
• Dividend-paying stocks with long track records
• Companies with consistent EPS growth (not erratic or cyclical)
• Blue-chip stocks where earnings estimates are relatively reliable

It's less useful for:

• High-growth tech stocks where future potential matters more than current earnings
• Cyclical companies (automakers, airlines) where EPS swings wildly
• Turnaround stories where current earnings don't reflect future potential
• Companies with negative earnings (the formula breaks entirely)

The Graham Number: A Complementary Formula

Besides the intrinsic value formula, Graham also developed the Graham Number — a simpler calculation focused on book value:

Graham Number = √(22.5 × EPS × BVPS)

Where:

• 22.5 = Graham's maximum acceptable product of P/E (15) and P/B (1.5)
• BVPS = Book value per share

This gives you a maximum price to pay for a stock based on Graham's conservative criteria. It's a useful cross-check against the intrinsic value formula.

We have a detailed guide on how to calculate the Graham Number if you want to go deeper.

5 Common Mistakes When Using the Graham Formula

1. Using Overly Optimistic Growth Rates

The biggest trap. If you plug in 15% growth for a company that's historically grown at 6%, you'll get a wildly inflated intrinsic value. Always lean conservative. Graham himself recommended capping growth at 7–10% for most companies.

2. Ignoring the Bond Yield Adjustment

The original 1962 formula doesn't account for interest rates. In today's environment (with yields around 5%), skipping this adjustment makes stocks look cheaper than they really are relative to bonds.

3. Applying It to the Wrong Stocks

The formula was designed for stable, profitable companies. Using it on Tesla, a biotech startup, or a company with negative earnings will give you meaningless results.

4. Treating Intrinsic Value as Exact

The formula gives you an estimate — not a precise number. Think of it as a range. If your calculated intrinsic value is $100, the real value might be anywhere from $80 to $120. That's why the margin of safety matters.

5. Ignoring Qualitative Factors

Numbers don't tell the whole story. Management quality, competitive moats, regulatory risks, and industry trends all affect a stock's true value. The formula is a starting point, not the finish line.

How to Apply a Margin of Safety

Graham was famous for insisting on a margin of safety — buying at a significant discount to intrinsic value to protect against errors in your analysis.

His general rule: only buy when the stock trades at least 25–35% below your calculated intrinsic value.

Using our JNJ example (intrinsic value of $158.84):

| Margin of Safety | Maximum Buy Price | |---|---| | 15% | $135.01 | | 25% | $119.13 | | 35% | $103.25 |

The wider your margin of safety, the more protection you have if your growth estimate is wrong or if the market takes a downturn.

Modern Alternatives and Complements

The Graham formula is powerful but simple. For a more complete picture, combine it with:

• Discounted Cash Flow (DCF) analysis — Projects future free cash flows and discounts them back to present value. More complex but more flexible. Check out our guide on DCF analysis made simple.
• P/E ratio analysis — Compare a stock's P/E to its historical average and sector peers using our P/E Analyzer tool.
• Dividend Discount Model — For dividend-paying stocks, this can be a useful complement. Try our Dividend Calculator.
• Comparative valuation — Compare multiple stocks side by side with our Stock Comparison tool.

Building Your Own Valuation Process

Here's a practical framework combining the Graham formula with other tools:

1. Screen for candidates — Look for stocks with P/E under 15, positive EPS growth, and stable earnings history.
2. Calculate Graham intrinsic value — Use the revised formula with conservative growth estimates.
3. Cross-check with the Graham Number — Does the stock pass both tests?
4. Run a DCF analysis — Get a second intrinsic value estimate using cash flows.
5. Check the margin of safety — Is the current price at least 25% below your estimates?
6. Review qualitative factors — Management, moats, industry trends, balance sheet strength.

If a stock passes all six checks, you've found something worth serious consideration.

Try It Yourself

The best way to learn the Graham formula is to practice it. Pick five stocks you're interested in, look up their EPS and growth rates, and run the numbers.

You can use our free valuation tools to pull up the financial data you need, compare stocks side by side, and analyze P/E ratios across sectors.

Remember: No single formula can tell you everything about a stock. But the Benjamin Graham intrinsic value formula has survived for over 60 years for a reason — it works. It forces you to think about what you're actually paying for, and it keeps you anchored to fundamentals when the market is anything but rational.

That's exactly the kind of edge individual investors need.

---

Want to stay sharp on valuation techniques? Check out more guides on the Value of Stock blog.