Graham Number

The Graham Number is the square root of 22.5 x EPS x book value per share — a ceiling price a defensive investor should pay for a stock under Benjamin Graham's rules. The 22.5 is not arbitrary: Graham capped the P/E at 15 and price-to-book at 1.5, and 15 x 1.5 = 22.5, so the formula blends both limits into one number.

A stock trading below its Graham Number passes the combined earnings-and-assets test; above it, at least one of Graham's two multiples is stretched. The screen is deliberately strict — in long bull markets most of the S&P 500 trades above its Graham Number, which tells you about the market's pricing, not that the formula is broken.

It fails by design on asset-light businesses. A software company with huge earnings and minimal book value will almost never pass, and negative EPS or negative book value makes the square root undefined. Graham built it for stable industrial companies, and that is still where it means the most.